Why do the US stock exchanges continue to rise despite bad economic news?

Question

Home sales and real estate is in decline. The US dollar is losing ground against other currencies. Consumer debt levels are high, and so are energy prices. Why does the US Stock markets continue to rise despite all this? Are we seeing a "bubble" effect where the market could suddenly collapse??? Thanks.

Answer 1

Jthomas is right. The markets are taking the weak economic news as evidence the fed WILL lower interest rates in the near future. But, what they fail to realize is that the Fed can't. The dollar is getting hammered and a rate cut would be the death knell for the dollar. Koko is partly right. During bull markets all news is good and during bear markets all news is bad - BUT what Koko failed to tell you is this kind of behavior/disconnect is indicative of a market top or bottom. For example, 1966-1982 was one of the worst bear markets in history. Any news was considered bad and the news commentators were basically saying that stock market was dead and a horrible place to be by the early 80's. You know what happened next, the great bull market in history became shortly thereafter.

This kind of rally is indicative of a market top, this kind of disconnect is a clear sign that one should be paying attention. The stock market is going to get hammered, we just have to wait for it.

Answer 2

The stock markets are rising with the bad news as long as the news isn't too bad. What I mean by this is that the markets want to see the economy cooling so that the Federal Reserve won't raise interest rates, and maybe encourage the Fed to lower interest rates. However, on days when a lot of bad news comes out that the market perceives as "too bad" the market goes down. For example. a week ago we got some bad news about Wal-Mart's sales numbers and the markets dropped significantly. Also, the market is beginning to believe that the housing market has bottomed and will begin to find its footing. If the housing market's decline is truly done, then I don't think this recent rise is too exaggerated because one full percentage point of GDP growth was lost in the last quarter because of housing market weakness. As for the chance of a collapse. I don't think we'll see a "collapse." I do think we will either see stock prices begin to level off or see a small correction. The market has been rising rapidly since July. However, simply because we are hitting new highs does not mean we are heading for a collapse. The Nasdaq is still about half of what it was in 2000, for example. Another example: back in the 1990s the Dow was hitting new highs almost monthly, but it took us 5 years to reach the most recent new high. To me, 5 years is not irrational exuberance, which is why I think a small correction and a sideways moving market is much more likely than a collapse.

Answer 3

I think we are at or near the bubble point right now. There are a few stocks I'm watching that have no reason to go up but they do because people are overly optimistic about the market.

For example, Yum owns Taco Bell and KFC. They just announced that a few Taco Bell stores were closing because over 20 people got e. coli poisoning from their food. Usually on news like that, stocks like that will tank. That's what happened to McDonald's and Wendy's stock when people were eating e. coli tainted burgers at different restaurants. But for Yum, their shares actually went up $1.70 today despite that bad news. WTF??

Same thing with Lowe's. The housing market is cold right now but their shares are still going up.

I think there will be a big correction soon. Prices can't stay this high when most of the economic news coming out is bad.

Answer 4

The most simple reason for the increase in the markets is a historically low P/E ratio. For example, earnings have grown over the last few years with limited price adjustment, moreover companies are buying back huge numbers of shares: if earnings are growing at 5% and the float is decreaing by 5% there is going to be a greater net affect since each shareholder has the right to a larger piece of net income. Also, by definition the United States is not in a recession right now, we've seen consistent GDP growth, recessions require a series of consecutive quartly GDP declines. American markets also have very limited risk, relative to other international markets, with the boom in oil prices foreign investors are entering American markets. There is also a lot of liquidity in the market, people are looking for places to put their money and its going into the markets.

Answer 5

First of all, we are not in a bubble, the P/E are very reasonable, even a little bit on the low side. In a bull market, any news is good news, this is one of the clear signs of being in a bull market. On the other hand, in a bear market, ANY news is bad news, the best news you can have in a bear market, is no news.

Answer 6

Diversification, diversification, diversification.

It is a broad market covering a wide, wide range of economic activity. BTW, don't put too much 'stock' on decreasing dollar values, there will be a balancing soon enough because most of the European Union has numbers worse than ours. It will change in time. You are talking panic and we are no where near to panic conditions.

Answer 7

information often makes a huge splash till midday, after that's often reversed in the afternoon. Markets often tumble quickly on worse-than-predicted information, yet they often opposite that immediately. it particularly is fairly real in a falling marketplace like we've, the place pessimism motives worse-than-predicted information to already be priced in. the extra severe-than-predicted information is straight away absorbed, and then everyone starts off finding on the subsequent checklist. There are symptoms that the marketplace is convalescing, slowly, and which means everyone seems to be "feeling the backside". funds rushes decrease back in to the marketplace to attempt to purchase up shares at lots. genuinely, they see the "worse information to come again" and start up seeing previous it. They understand that the backside is coming quickly, and that they p.c. to get in formerly the backside, by way of fact they understand that the fees will upward thrust immediately after that, and that they do no longer p.c. to be left at the back of.

Answer 8

Contrary to popular belief, we were in a recessiona fter Clitnon left office in 2000 and are still in one due to past few years. But soon to be followed by aperiod of high inflation. As evuidence by higher prices and lack of consumer confidence. to answer your question yes