Why Markets Go Up If Economic Indicators Go Down
Markets uptrend is surprising everybody. But is this rational and sustainable over time? Everybody is asking if markets could go up while economic indicators are showing us a slowdown in the activity. There is no unique answer. Many analysts believe that global economy is going into another recession and the W scenario (W-shaped economic pattern) is the most probable. Many others, including me, believe that global economy is making a pause, getting some fresh air and, then will be back on the growth path.
The Federal Reserve held the interest rate at its lowest level this week in history and said that it will increase purchases of Treasury bonds to inject liquidity. Will another stimulus program take place if the economic indicators continue to be weak? Probably, the FED is going to do something to stimulate the economy and generate a dynamic process in the labor market in order to create new payrolls.
Besides, the European Central Bank is looking for a balance between budgets cuts in many countries and the reinforcement of the economic recovery, avoiding the chance to have another recession scenario. High unemployment, anemic growth and overvalued currency are the things that the monetary authority must fight with.
Coordination measures are necessary again. China can’t lead global economic recovery without US and EU. Credit mechanism must be reconstructed to let the economy grow again. The FED and ECB have the key to gain momentum again.
In my opinion it is not too late, but we don’t have much time. Markets are looking for positive signals. Corporate results were one, but they need more to continue. They need to believe that a W recession scenario has no chance to occur.