Whenever there is a negative economic report (like an increase in unemployment), the stock market seems to go up. Why is bad news good for the stock market?
Wall Street has a tremendous fear of inflation. When reports say that the economy is doing well, analysts fear that the economy will be heating up and that inflation will start to rise. Since that tends to have long-term negative effects upon the stock market, analysts tend to agree that the Federal Reserve will have to step in and raise interest rates. The Fed may also reduce the economy's money supply. This tends to slow the economy and prevent expansion - and can almost create a recession. This has a detrimental effect upon the stock market in the long run.
Wall Street has a tremendous fear of inflation. When reports say that the economy is doing well, analysts fear that the economy will be heating up and that inflation will start to rise. Since that tends to have long-term negative effects upon the stock market, analysts tend to agree that the Federal Reserve will have to step in and raise interest rates. The Fed may also reduce the economy's money supply. This tends to slow the economy and prevent expansion - and can almost create a recession. This has a detrimental effect upon the stock market in the long run.
When there is economic bad news (which indicates that the economy is growing slowly or not at all), then the Federal Reserve is likely to stimulate the economy by encouraging businesses to borrow by lowering interest rates. This has a positive effect upon the stock market.
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