Wednesday's Market Minute: Bad Is Terrifying, Good Is Awkward

There have been many instances throughout the last several years in which investors’ reaction to economic data gets a little topsy-turvy. “Bad is good and good is bad” became a trademark phrase of the latter stage of this bull rally, in which higher interest rates were only welcomed by Wall Street if they came precisely at the pace Wall Street desired.

So, good data sometimes became bad for stock prices as the Fed navigated tightening policy. The laymen’s way to think about it: when stocks are at highs, good data complicates the picture if it makes the Fed feel comfortable with elevated rates. If stocks are at lows against a worsening backdrop for the global economy – like in last year’s big sell-off or in early 2016 – good isn’t so bad, if it means a recession isn’t on the near-term horizon.

With GDP and inflation prints on the way this week, where does “good” stand? Stocks aren’t on the highs today, but they’re not on the lows, either. The biggest sell-offs this summer have been around tariffs and concerns of an economic downturn in the U.S., so with that setup, good data should be comforting – if for no other reason than that bad data would be terrifying if it shows cracks in the last economic stronghold of the world. Still, with stocks trading at 18.5x trailing earnings again on the back of big expectations for the Fed this year, and Fed members setting up reasons for why Jay Powell doesn’t need to cut, “good” is sure to still be awkward.

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