As happens in most stock rallies, news is interpreted in the best possible light. So it goes Wednesday in the U.S. The Dow Jones Industrial Average at this writing is up about 200 points to around 8200.
This morning it was announced by the government that the gross domestic product, about as wide a measure of economic activity as you can get, fell at a rate of 6.1% in the first calendar quarter of 2009. That was much worse than expected.
Cause for rejoicing? The stock market thinks so. Traders and investors found good news in the big reduction in inventories. That hurts GDP for now but promises renewed hiring and production when buying speeds up.
That brings us to good news piece number two in the report. Consumer spending actually rose a bit.
Oh, and you can always make the case that GDP is “old news” because it is backward looking. Hey, we’re already in the second quarter, who cares about the first? Stock market bulls, that’s who.
On to the other big market story of the day: the Federal Reserve’s statement after its policy setting meeting of the open market committee.
No drama, of course, since short-term interest rates are effectively at zero and will stay there for a good while. But the stock market saw a best-of-both-worlds here, too.
It shows everything is relative, as investors desperate for economic growth seized on this Fed phrase. “…the pace of contraction appears to be somewhat slower.”
So combine the Fed view that things are less awful by some unknown degree than they were before (no overused green shoots analogies here) with the Fed’s reassurance that its quantitative easing policies continued undiminished and stock market bulls find reasons to smile.
The rest of the Fed statement, when negative, is treated like boilerplate. “…economic activity is likely to remain weak for a time.” Maybe it’s faith in the Fed’s confidence. The central bank today assured us that its actions, fiscal stimulus and market forces will “contribute to a gradual resumption of sustainable economic growth in the context of price stability.”
Also encouraging is the tentative return of retail investors. Long-term mutual funds saw net inflows for the sixth straight week.