This Market Loves Bad News

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City on Feb. 23, 2024. Brendan McDermid/Reuters

Commentary

The market’s mantra in May seems to be “Bad News is Good News,” since it takes bad news to send the markets up. Specifically, it took a plunge in consumer confidence over food and energy costs, slowing job growth and decelerating wage gains, plus slower ISM manufacturing and service numbers (under 50, signaling a contraction) to push 10-year Treasury yields below 4.5% early last week, giving Wall Street some renewed hope that the Fed might begin cutting key interest rates sooner rather than later. Treasury rates also remained low since last week’s Treasury refinancing went well for T-bills, notes and bonds. On Thursday, the $25 billion auction of 30-year Treasury bonds was well received, so Treasury yields fell, triggering a stock market rally. Someday, economists fear that Treasury yields could soar if buyers balk because they think the federal government is too deep in debt, but Thursday was not that day. Still, with all that bad news, the Atlanta Fed raised its second-quarter GDP estimate to a 4.2% annual pace, up from its previous 3.3% estimate – despite last week’s dismal economic data that caused Treasury yields to decline. The Atlanta Fed cited a revision in real personal expenditure growth, as well as real private domestic investment, as their primary reasons for the upward GDP revision. Confused? I know I am! I suppose the Atlanta Fed must expect a big replenishment in inventories to reach 4.2% GDP growth.