When Bad News is Good News and Good News is Bad News
Market movements, especially those that occur over a short term, often puzzle investors. However lately, market reactions to economic and political news appear to be completely illogical, retreating on good news and rallying on bad news. Is this a new paradigm or have investors turned completely contrarian? In April, we saw the markets slide while unemployment claims dropped to their lowest levels since 2008. We saw the opposite in September when the Federal Reserve surprised the markets by not tapering its $85 billion a month in bond purchases. On September 18th, the Fed officially downgraded its outlook for the economy and the market rallied. Officials that day reported gross domestic product growth will be in the 2.0% to 2.3% range this year, down from the 2.3% to 2.6% forecasted earlier in the year. In addition, the Fed also cut the 2014 forecast to 2.9% to 3.1% from 3.0% to 3.5%. This bad news lifted the S&P 500 to a new record high, jumping over one percent that day. The Fed's weakened outlook on the U.S. economy prompted investor speculation that the Central Bank would delay any sort of tapering.