Gavekal Capital: Employment in the US & Stock Valuations

Wednesday, October 23, 2013

Employment in the US & Stock Valuations

For the last 40 years, the employment to population ratio has been well correlated with equity valuations.
As would make sense, when more people are working, income is higher, demand is more sustainable and investors rationally capitalize corporate earnings at a higher rates.  When employment rates are low, the opposite happens.  By this crude measure, stock valuations Should more appropriately be in the 10-15x range, rather than the 20-25x range.