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Is the Global Economy So Bad, It’s Good?

On Tuesday, pros were starting to wonder if stocks had more upside, largely because the economic outlook had grown darker.

That may sound counter-intuitive but it's very much behind Tuesday's rally in the S&P and Dow.

Looking at the latest data from overseas, and you’d be hard pressed to find any reason for optimism.

InGermany, investor morale sank in June at its fastest rate since October 1998.

And in Spain, yields on Spanish bonds remained stubbornly high. Madrid had to pay 5.07 percent to sell 12-month Treasury bills and 5.11 percent to sell 18-month paper - an increase of about 200 basis points on the last auction for the same maturities a month ago.

Meanwhile, yields on longer-term bonds were over 7 percent, a level largely considered unsustainable.

And in the US, the housing market again confounded investors.

The Commerce Department said on Tuesday that groundbreaking on new homes dropped 4.8 percent to a seasonally adjusted annual rate of 708,000 units. The reading, which is prone to significant revisions, was below the median forecast in a Reuters poll of a 720,000-unit rate.

All told, the confluence of negative developments sound like a good reason for stocks to sell-off, but they may actually be quite bullish.

Huh?

With the latest Fed meeting underway, expectations have increased significantly that at the conclusion of the meeting on Wednesday, the central bank will feel compelled to make a move. Although speculation is wide ranging, consensus suggests that the Fed will extend its "Operation Twist" program.

Meanwhile, the lousy data from Europe -- especially Germany -- has raised expectations for market-friendly stimulus from European policymakers as well.

If global markets get stimulus from both the Fed and EU - stocks should rally.

“I wouldn’t take it as an all-clear,” says Fast Money trader Guy Adami, managing director of stockMONSTER.com. “But price is truth,” he says, and it feels like the market wants to march higher.

Looking at the S&P , he adds, “1362 is the next line in the sand. It’s a retracement level measured from the June low and the recent high in April. Whether or not that level holds or generates resistance will confirm or deny the market’s next big move.”

What do you think? We want to know!

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Posted by CNBC's Lee Brodie

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