Recession Fears Are Seeping Into the Stock Market
Stock bulls are no longer seeing the silver lining in bad news, and that means they're getting worried.
Last week’s sell-off was driven by weak data, unlike other recent declines.
Photographer: samxmeg/iStockphotoLast week brought lots of bad news about the American economy. The stock market treated each new data point suggesting that activity was slowing down as bad news. And that, in itself, is bad news.
Here’s why: Grim tidings for the economy aren’t necessarily so bad for investors, because they tend to lead to lower interest rates. That, in turn, makes it cheaper to invest and justifies paying a higher multiple for stocks. Growth that is too strong can mean higher rates, and that’s a problem. Hence equity investors yearn for “a Goldilocks economy” – one that is neither too hot nor too cold.