When Is Good News Bad News? When It’s the Stock Market
By Shlomo Maital
Love that stock market! It goes up on bad news, down on good news. Can we understand why?
I belong to a panel of the German Ifo Institute, that quarterly surveys experts around the world to assess the global economic situation. The latest report? “world economic climate deteriorates, economic expectations less positive, inflation expectations remain low, US dollar expected to rise (it has), interest rates look set to remain stable (maybe not).”.
The U.S. stock market has risen sharply in the past year. But it recently declined. Why? Good news on the American economy – U.S. job creation and GDP growth are stronger than expected.
Run that by me again? How can good news be bad news for the stock market?
It’s simple. Wall St. is incurably addicted to cheap money and low interest rates, and plentiful credit. When the economy gets stronger, it increases the likelihood that Janet Yallen and the Fed will raise interest rates, ending the era of cheap money, and denying Wall St. from its daily/weekly fix of low-interest cash, used to speculate and earn billions. So the stock market drops, because good news for the economy is bad news for Wall St.
Does this show a sharp conflict of interest between the general population and the moneybags who run Wall St.?