The Labor Department reported last Friday that job growth exploded in March at the fastest pace since the summer of 2020, as stronger economic growth and aggressive vaccination efforts contributed to a surge in hospitality and construction jobs. Nonfarm payrolls increased by 916,000, exceeding economists’ expectations by over 241,000 jobs. Accompanying that good economic news, the unemployment rate fell to 6%.

Many experts see this as a sign that the economy is healing, as many people who lost their jobs are coming back into the workforce as the recovery continues and restrictions are lifted. Leisure and hospitality, a sector critical to restoring the jobs market to its former strength, showed the strongest gains for the month with 280,000 new hires. Bars and restaurants added 176,000, while arts, entertainment and recreation contributed 64,000 to the total. Goldman Sachs analysts said in a recent outlook piece they now expect 8% economic growth in 2021 and an unemployment rate of 4% by year-end. They think the unemployment rate could reach as low as 3.2% by 2023. Treasury Secretary Janet Yellen thinks we could be back at full employment as early as next year. States and municipalities across the country continue to reopen after a year of operating at reduced capacity. So, with all the positive economic news, why is there a lingering fear of another market correction hanging around in the depths of our minds?

With the surplus of good economic news, it is hard to believe it was only a year ago that businesses, schools, restaurants, and supply chains effectively shut down, dramatically altering our everyday way of life. This led to the worst quarterly economic contraction on record in the second quarter of 2020. The scars of this crisis have not healed for most, yet somehow, we are now to believe that we are on track for another potential economic boom.

The pace of current gains combined with unprecedented levels of government stimulus have many worried about inflation. Investor emotions whipsawed, from last year’s fear of economic depression to now fear of an inflationary spike. We have all just lived through the fastest recession in US history, so, despite all the apparent evidence, it is reasonable to be skeptical of the claims of experts. Has the stock market ever crashed as the US economy has soared? It is very rare but not unprecedented. In 1937, real GDP came in at 5%, yet the S&P 500 finished down 35%. In 1941, the US GDP was in double digits while the stock market was down almost 11%. This was an instance where investors were spooked by World War II.

For the most part, however, stocks have generally seen strong returns when economic growth is high. In seven out of the 11 years when real GDP growth was 8% or higher, the stock market was up double digits. This is not a perfect relationship, but you can see that as the higher real GDP growth has typically gone, the higher the average annual stock market returns tend to have gone. Therefore, it is relatively rare for the stock market to fall concurrently with a booming economy.

There is the possibility of a negative “sell the news” reaction by investors now that the market is already up around 80% from the bottom in late March 2020. That is a risk worth considering, and a risk worth discussing.

Likewise, betting against the stock market against the backdrop of what could be the strongest economic environment since the 1990s seems like a risky proposition as well and is another risk worth discussing.

For more information, contact your HORAN Wealth Advisor at 800.544.8306.

Information presented was obtained from the U.S. Bureau of Labor Statistics (bls.gov), CNBC News (CNBC.com), A Wealth of Common Sense (awealthofcommonsense.com), and Fortune Magazine (fortune.com). While we believe that the information is accurate, HORAN does not make any guarantees to the accuracy but based on current economic data we are confident in its reporting.

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