Labor Conditions and Future Capital Market Performance

The authors find that since 1970, when the unemployment rate is high, the next 24 months of stock and bond returns are high; vis a vis, when the unemployment rate is low, the next 24 months of stock and bond returns are low.  They posit the cause of this relationship is that if labor costs go up (benefiting the labor market), shareholders don't do as well (because more of their earnings had to be paid out in wages); and vise versa.  Also, they suggest that if labor is doing poorly (i.e., the unemployment rate is going up), that might mean interest rates will go up in the future thereby reducing the discount rates and increasing valuations of stocks.

ARNOTT, R., LI, F., & LIU, X. (2016). Labor Conditions and Future Capital Market Performance. Journal Of Portfolio Management, 43(1), 54-71.