Understanding where we are in the employment cycle can provide significant clues to how bonds and stocks are likely to perform in the future. Historically, 'maximum employment' has acted as an inflection point for financial assets, often triggering for the Federal Reserve to raise interest rates, increasing the risk for the stock market. Below, we show a couple of charts that illustrate the current level of employment and labor participation rates. Our estimate is maximum employment will be reached when the unemployment rate reaches 3.5% and labor participation increases to around 63%. Based on current and projected economic growth, these levels may be reached in late 2022. Keeping an eye on these levels may be helpful as you look for clues when the Federal Reserve may start raising rates and volatility for stocks may pick up!
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