The recent economic news has been about as investor-friendly as anyone could imagine.
It started with last week’s strong U.S. employment figures; continued through Tuesday’s reassuring International Monetary Fund forecasts, which put the probability of avoiding a global recession this year to 99.9 percent, and culminated in dovish Federal Reserve minutes, which soothed concerns about an earlier than expected increase in U.S. interest rates.
Considering all this good news, investors could justifiably feel surprised — even shocked — by Wall Street’s sharp falls this week. By Thursday afternoon, the Standard & Poor’s 500 had given back its entire gain for the year, and the Nasdaq 100 gauge of leading technology stocks had suffered its biggest setback since 2011. Many market analysts interpreted the negative reaction to good news as a classic sign of a market top, warning that the uninterrupted rise in share prices that began more than five years ago is overdue for a sharp reversal.
But looking at the economic and financial data, it was hard to see justification for such anxiety. Last week’s rebound in U.S. employment growth — the crucial monthly statistic that tends to set the tone for asset markets around the world — could only be interpreted as good news. Especially after the shockingly weak December payrolls that triggered the global equity correction at the start of the year.
February and March monthly employment growth reverted to almost exactly its three-year average of 184,000. For equity investors, this meant much less concern about a U.S. economic slowdown, never mind the stagnation or recession that some bearish economists were predicting as recently as a few weeks ago.