Good news will be viewed by the stock market as bad news for the Fed to raise interest rates for a longer period of time, and vice versa.

Although the U.S. stock market seems to be rising due to a series of good news, the stock market really doesn't want to hear too much good news. 

The economic data released recently have been pretty good, and the stock market has been doing pretty well. 

Data released last Thursday (November 30) showed that the PCE price index, the inflation indicator that the Fed is most concerned about, is declining. The day before, the U.S. government revised its third-quarter real gross domestic product (GDP) growth upward from 4.9% to 5.2%.

It follows that inflation is falling, the economy is growing rather than slowing, and while talk of a recession has not gone away, it is no longer discussed as intensely.

Judging from the seasonal pattern, November is usually a relatively strong month for U.S. stocks, but this November, the three major stock indexes not only performed strongly, but also achieved their best November performance in three years. 

Dow Jones Market Data shows that the S&P 500 rose 8% in November, marking its best November performance since 2020. The Dow Jones Industrial Average rose 9%, also recording its best November performance since 2020. The Nasdaq Composite Index, which has been rising this year, rose 11% in November, its best November performance since 2020.

As of the end of November, so far this year, the S&P 500 is up 19%, the Nasdaq is up 36%, and the Dow is up 8.4%.

Therefore, year-end buying and solid economic data, which are common each year, give investors more reasons to buy. Continued GDP growth is expected to translate into higher corporate profits, which have been beating expectations.

These are the driving forces behind the stock market rally over the past few weeks, but don't believe the "Wall Street likes everything to look good" narrative. 

Not so. 

The hard truth is that the stock market doesn't want to hear a lot of good economic news right now.

For example, much of the stock market's gains this year have come as inflation has fallen to nearly 3% from a peak of more than 9% last year, suggesting that stocks want to see demand in the economy cool. 

Cooling demand, in turn, could allow the Federal Reserve to keep interest rates steady and possibly even cut them in the coming months. 

In fact, when the S&P 500 index began to rebound from its previous multi-month lows in late October, the federal funds futures market had already priced in a 45% probability of a rate cut in March next year, up from about 11% at the beginning of the rebound. . 

This is because, in addition to the recently released GDP data, there are many economic data that are lower than expected. According to data from 22V Research, in mid-November, the Citi US Economic Surprise Index, which reflects the gap between a basket of U.S. economic data and market expectations, fell to nearly 25 from 75 a few weeks ago. 

Stock markets welcomed the sharp decline in the index because it suggested that many areas of the economy were slowing down, while inflation was cooling further and the Federal Reserve was almost certain not to raise interest rates. 

Still, stocks may still rise in the future in the face of bad news. Any sign that the economy is too strong will reduce the likelihood of a rate cut or increase the likelihood of another rate hike, which will put pressure on consumer and business spending. Reduced spending will lead to lower earnings expectations, before earnings actually fall. The stock market will fall. 

Chris Harvey, chief U.S. equity strategist at Wells Fargo, said: “Good news on the economy in 2024 is likely to be viewed by the stock market as bad news with a longer period of support from the Fed raising interest rates. ,vice versa."

This sounds complicated. The S&P 500 cannot currently withstand the pressure of further increases in interest rates.

Perhaps the only way to make it easier to understand is to remember that U.S. stocks are still a "bad news is good news" market.