Is Good Data Now Bad News?

Key Points

  • It is possible that good data could be interpreted as bad news for the U.S. stock market at least in the near-term as strong economic data, especially on jobs, could prompt the Fed to unwind earlier.

  • In contrast, good news may remain good news for international stocks, because the rise in inflation has not been seen globally and central bankers in Europe and Japan are not under pressure to communicate tighter policy.

  • Strong growth may favor international stocks over U.S. stocks, tempered slightly by the near-term risk of a stronger dollar. Investor worries over a global economic stall may be held in check since, unlike at the start of the pandemic when all central banks rushed to loosen policy simultaneously, tightening will be a much more gradual and independent process, with the ECB and BOJ much slower to withdraw stimulus.

The June 16 Fed meeting and its accompanying Summary of Economic Projections were the focus of last week's news, featuring a dot plot that points to potential rate hikes by end-year 2023 and discussion commentary about upcoming QE tapering . The market interpreted the Fed’s message as a sudden lurch toward unwinding its extraordinary policy stance in response to a strong economy and soaring inflation. Investors reversed this year’s reflation trend in the markets:

  • stocks posted their worst week since February,
  • value stocks underperformed growth stocks,
  • international stocks underperformed U.S. stocks,
  • the dollar strengthened with its best week since September 2020
  • gold had its worst week since March 2020.