Is Bad News Really Good News Again?
Soft data is likely to keep the Fed easing.
Despite economic news that has been bad for three weeks running, earnings news that has proven uninspiring, and a Federal Reserve that appeared to be a lot more divided than commonly believed, the U.S. equity markets strung together four up days in a row before succumbing to the retail sales report on Friday. What gives?
I believe the markets were very fearful that the Fed would tighten and stop buying bonds if the economy picked up steam. In fact, minutes from March 20 said as much when they were released on Wednesday. However, the parade of bad economic news over the last three weeks has convinced markets that the Fed is not tightening anytime soon. Also helping world markets along this week was news out of Japan that they would engage in more quantitative easing to bring deflationary pressure in that country under control.