Thursday, May 16, 2013

Dreadful Divergence Between Macro Data and Stock Market

This chart shows on a single graph the direction of the stock market coupled with the direction of the economic indicators over the past few months. In finance parlance, we call this a "divergence". It's what happens when the real economy and stocks part ways. Eventually, one or the other must turn and recouple with the other. Any bets on which one it will be? 
It's a pretty safe bet that eventually, the stock market will drop sharply to correlate with the economic data. That's what usually happens! But Wall St, with so much Fed money in its pockets, is betting than the economy will soon turn higher again, despite the horrific economic data. To them, the Fed's power is godlike in its effectiveness. 
 This chart is from Bloomberg News.