It’s been an ugly few days in the stock market as investors suddenly grew nervous about brewing trade wars, federal job cuts, reheated inflation and overall economic anxieties.
As a result, talk about a potential recession is percolating and share prices are tumbling. Could an extended bout of Wall Street turbulence toss California’s healthy economy into reverse?
To see if there are significant links between stock price swings and the California economy, my trusty spreadsheet loaded up 47 years’ worth of data from the NASDAQ composite index, a good barometer of the tech industry’s fortunes that are critical to California’s success. It also looked at the Golden State’s unemployment rate, tracking that as a yardstick of statewide economy.
To smooth out the stock market’s volatility, the spreadsheet tallied an unusual measurement of stock prices – the year-over-year change in monthly NASDAQ readings. The math is similar to how the real estate industry tracks home prices.
For starters, you should know that as of Wednesday, March 12 the NASDAQ remains up 7% from the same time a year ago, despite the recent upheaval. However, that gain contains certain warning signals.
The 12-month gain is half NASDAQ’s 14% average annual gain over 47 years, and it’s the smallest yearly advance since the summer of 2023.
And as recently as October 2024, just before the presidential election, the NASDAQ was surging at a 39% annual pace.
So, here’s what to worry about.
Consider the periods when the NASDAQ was down in any 12 months since 1977, and what the statewide unemployment rate did the following year. On average, joblessness increased from 6.8% to 7.6%.
Conversely, consider when NASDAQ rose since 1977. In the following 12 months, unemployment across California fell on average to 7.2% from 7.5%.
These numbers tell me that extended periods of stock market weakness might chill the California economy. NASDAQ dips tend to occur as the state’s business climate goes from healthy to troublesome. Does this sound like early 2025?
We’re not triggering the “NASDAQ curse” economic alarm yet. It’s down down, year-over-year, yet.
But recent market mayhem is a solid reminder that the stock market matters to California paychecks.
Bosses at publicly held companies are well-compensated to carefully monitor their stock movements. When share prices are down, the corporate cost-cutting mentality often takes over.
And jobs get pruned.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com