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Bad news turns good for 'Fed addicted' stocks

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Why the rally? Here are three reasons

The promise of an easy Fed, a weaker dollar and service sector data that showed an expanding economy helped lift spirits and stocks Monday.

After Friday's surprisingly weak jobs report raised real questions about the strength of the economy, stock futures fell sharply, the dollar sank and Treasury yields fell. That all began reversing Monday morning, helped in part by comments from dovish New York Fed President William Dudley, who said the trajectory of central bank rate hikes would be shallow and the timing of the increases is uncertain.

The dovish Fed kept pressure on the dollar and that was a positive for stocks. It also helped, at least temporarily, to disrupt a recent trend where traders view the disappointing string of first-quarter economic reports as a reason to sell stocks, for fear they are a harbinger of a very weak corporate earnings season.

"I think it was the Dudley comments, and everyone's just hoping rates stay lower for longer. He threw the markets a bone by saying the pace of rate hikes would be shallow and they would take the markets into consideration, so you have a lot of hand-holding and that makes people feel better," said Michael O'Rourke, chief market strategist at JonesTrading.

"I think it was also a lot of short covering. There's still a lot of people off for the holidays but following a bad number, everyone thinks the Fed is looking for a reason not to tighten. When they see one, the first reaction is to buy or cover."