The answer “Because we’re in a bubble” is not satisfactory enough to us, let’s just stop for a while and think about what really moves stocks and bonds, shall we ?
Ok so you all know now the really bad news from the US: GDP in Q1 2014 fell by 2.9 percentage points.
The GDP report was published at 2:30 PM, one hour before the beginning of the trading day at Wall Street.
The first thing we thought when we saw that ugly -2.9%, was one simple word: “Why ?”.
To understand the reason of this collapse in GDP, we went reading the full report, and guess what ? It turns out that the huge problem (2/3 of the revision from -1% to -2.9%) comes from a deep reduction in healthcare spending (which was expected to grow by 9.1% until last month, now we have a -1.4%):
Knowing that GDP in Q2 is expected to be extremely positive (we expect, as we told you, a growth between 3-4 percentage points qoq), the fact that Wall Street is completely ignoring the bad data of Q1 should not surprise you:
Please, remember that finance is based on expectation, and the market is expecting a huge GDP expansion for the next quarter.
But, if you prefer, you may just say to the readers of your blog: “Woah it’s a huge bubble !” because, all in all, people love catastrophism.