The Effect Of Jobless Claims On The XLF

Takeaway: Looking at the $XLF and the past two years of jobless claims, there's a shocking lack of correlation.

If you go back to 2007 and look at the relationship between jobless claims numbers and the Financial Sector SPDR (XLF), there’s not to discuss. Relatively little correlation, nothing to write home about. See the chart below for a visualization:

The Effect Of Jobless Claims On The XLF  - XLF Jobs

Now, if you examine the last two years only, you’ll find a more shocking correlation – zero. That’s right, jobless claims and the XLF have had zero correlation over the last two years. What does this mean? It means that even though jobless claims have improved over the last 104 weeks, moving from roughly 488k to 355k, there has not been a higher move in financial stocks.

The Effect Of Jobless Claims On The XLF  - XLF 2years

As Hedgeye Financials Sector Head Josh Steiner points out:

For reference, that same move has driven a 302 point rise in the S&P 500 (+27.4%). Financials have been and should be more sensitive to changes in jobs than other sectors as their primary P&L driver is credit, which reflects frequency and severity of loss. Frequency of loss is driven by newly unemployed people, which is reflected in initial jobless claims.”