US share prices are rallying even as more Americans lose their jobs because history shows that by the time unemployment surges, the worst of the economic slowdown is past, market analysts say. Investors snapped up shares of Cisco, Eastman Kodak and Merrill Lynch last week as US stocks rose for a fourth straight week. After an initial dip, major indices rose sharply on Friday, a day when Labour Department data revealed unemployment had risen to a 2-year high of 4.5 per cent. Businesses also slashed payrolls by 223,000, the largest monthly decline since the 1991 recession. The unemployment rate continued to rise to a peak in the middle of 1992.
Bullish investors say that is proof stocks are likely to rally even if unemployment rises further.
The Wilshire 5000 Total Market index, the broadest measure of US stocks, gained 1.6 per cent, its fourth straight weekly advance. That is the longest string of gains since the week ending September 1. We think that's pretty bullish. The economy was not likely to worsen further, in part because the Federal Reserve was cutting interest rates, with another 0.5 per cent cut now likely on or before May 15, and the Bush Administration was pushing to cut taxes, investors said. As the economy rebounds, so will corporate profits, they say.