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Unemployment remains frustratingly high in the United States, and many observers are fretting about the possibility of a jobless recovery - but you wouldn't know it from the stock market.

Judging from its behaviour over the past 14 months, the S&P 500 is betting on a strong economic rebound with jobs for everyone. You can see this in the way that various groups of stocks within the broad index have been moving since it began to recover in March, 2009.

Higher-risk cyclical stocks that thrive on robust consumer spending and strong confidence have been leading the pack during the rebound. Financials are out in front, with gains of about 135 per cent. Consumer discretionary stocks (think Harley-Davidson Inc., Starbucks Corp. and Bed Bath & Beyond Inc.) aren't far behind, with gains of nearly 100 per cent.

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Meanwhile, defensive stocks have lagged, even though these are the companies that stand to perform relatively well even when the unemployment rate refuses to budge. Procter & Gamble, which makes household products used by rich and poor, has risen 39 per cent. Coca-Cola Co. has increased 32 per cent.

In normal times, you wouldn't scoff at double-digit gains. But the degree to which these gains have lagged the broader market suggest that these steady-Eddie stocks are largely unwanted by investors. In Canadian-dollar terms, they've barely budged.

Admittedly, defensive stocks didn't fall as far as their cyclical cousins during the steep stock market dive in 2008 and early 2009, when bailouts were required to keep some companies afloat. Therefore, it makes some sense that defensive stocks wouldn't rebound as fast.

Nevertheless, the stock market is sending a pretty clear signal that it sees good times ahead - recent volatility aside - with consumers loading up on all sorts of discretionary items. Is the market wrong?

The market does get carried away at times, overshooting on the way up and the way down as investors let their emotions get the better of them. But what's more important here is that consumer staples are among the best deals available if you think that the U.S. economic recovery won't put people back to work.

As a group, U.S. consumer staples trade at 14.5 times trailing earnings, lower than the 15.5-times earnings of the S&P 500 and consumer discretionary stocks. Meanwhile, staples pay out far bigger dividends, with the group yielding 3 per cent, versus 2 per cent for the S&P 500 and 1.4 per cent for discretionary stocks.

The prospect of sluggish employment growth over the next decade is grim news. But for investors, it doesn't have to be.

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