Week Ahead: For stocks, there's no need to fear good news

Sat Jul 6, 2013 8:43am EDT
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By Ryan Vlastelica

NEW YORK (Reuters) - Wall Street doesn't hate good news after all.

The June jobs figures were stronger than expected and caused a big selloff in the bond market. That further underscored expectations that the Federal Reserve will be chopping back its big bond-buying program sooner rather than later. This kind of occurrence in the past would have caused the stock market to freak out.

But the three major U.S. stock indexes climbed 1 percent on Friday, possibly pointing the way to more gains ahead.

The stock market has been in an odd spot for some time. Fear that the Federal Reserve would reduce its monthly bond-buying stimulus, designed to boost borrowing demand and help the U.S. economy, put investors in the position of rooting for just-OK data, the kind of figures that would keep the spigot open while still pointing to decent growth.

This report may have definitively changed that outlook. In June, a total of 195,000 jobs were created - much stronger than the forecast for 165,000. Government data also showed that the U.S. labor force has increased for three straight months now. The 10-year U.S. Treasury note's yield jumped to a two-year high above 2.70 percent from 1.60 percent in a matter of weeks.

In that time, equities have barely budged. Sure, the S&P 500 has drifted off its all-time closing high of 1,669.16 reached on May 21. It's still less than 3 percent from that mark despite the sharp rise in interest rates. Light volume in the stock market, however, means that the move up should be taken with a grain of salt. And it makes the next several days that much more important.

"Good news is good news, but there's so much uncertainty about how payrolls could impact markets," said David Kelly, who helps oversee $400 billion as chief global strategist for JPMorgan Funds in New York. "The market is schizophrenic about this."

Good news in the form of bullish economic data has recently been taken as a negative, causing market selloffs on the theory that it means the Federal Reserve will slow its stimulus. While comments from Fed officials helped relieve those concerns last week, June's strong payrolls data refocused investors' attention on the uncertainty.   Continued...

A trader works on the floor of the New York Stock Exchange as it closes for the week, July 5, 2013. REUTERS/Lucas Jackson