Newspaper article THE JOURNAL RECORD

Bull Market Even Overcomes `Good' News with Increases

Newspaper article THE JOURNAL RECORD

Bull Market Even Overcomes `Good' News with Increases

Article excerpt

NEW YORK - The stock market has been so strong lately that even good economic news doesn't seem to upset it.

For the past several years, the market has earned a reputation for thriving on events with negative connotations - reports of slowing economic growth, for example, or word of a rise in the unemployment rate.

Conversely, what looked like good news on the surface has often touched off a market decline.

The explanation for this perverse behavior is now widely accepted: If the news suggests that interest rates are likely to fall, stock traders focus on that prospect rather than its adverse implications for the current economy. By the same line of reasoning, evidence of strong economic growth is often interpreted as a portent of rising interest rates.

So a lot of people on Wall Street expected some trouble when the government estimated the other day that the economy grew at a 3.2 percent annual rate, adjusted for inflation, in the first quarter of the year.

The figure exceeded just about all projections on Wall Street. At first blush, it appeared to diminish the chances that the Federal Reserve would lower the discount rate.

As it turned out, that conclusion was misguided. Late Friday, the Fed announced a reduction in the discount rate from 7 percent to 6.5 percent.

The bond market's booming rally did flatten out on the economic growth data. But the stock market, after a brief pause, pushed ahead to new highs.

As it became clear that no storm was about to hit, brokers and economists quickly came up with reasons why the good news wasn't bad after all.

Some said the figure overstated the strength of the economy, and wasn't likely to make much of an impression on policymakers at the Fed. Others pointed out that this was only a preliminary estimate, quite susceptible to downward revision in the future. …

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