Bad news for the economy is no longer good news for the stock market.
The Federal Reserve is now on hold, and indicated clearly in minutes from its last meeting released Wednesday that it will not only stop raising interest rates for now but will stop shrinking its balance sheet in the second half of the year, potentially giving a boost to markets.
So after a stream of negative economic data Thursday, traders saw little reason to bid up stocks on the hopes the Fed would ease up on policy .
"I think we're at a precipice, where the intentions of the Fed are well known," said Art Hogan, chief market strategist at National Securities. "So they're on pause until the data improves. They're certainly going to use their balance sheet as a stealth stimulus, and the stock market just had a significant run."
The stock market on Thursday slumped after a string of reports that missed expectations. December's durable goods data showed a surprise slowdown in business spending. The Philadelphia Fed manufacturing survey fell to minus 4.1, the first negative number since May 2016 and the biggest drop since August 2011. Markit PMI data also showed manufacturing activity at the slowest pace in 17 months.
Previously bad data like that might have sent stocks higher. "It helped drive our perception of monetary policy because it was going to influence the Fed's pivot," Hogan said. "Now, the Fed has made their pivot. We know where they stand and incrementally bad news is not going to change their position."
Some really bad data, however, could have a negative effect. The Dow fell 104 points a week ago Thursday, after December's retail sales report showed a sudden, unexpected drop of 1.2 percent in spending, at a time when consumers should have been shopping for holiday gifts. Some economists wrote off the number as suspect, but it still rattled markets and sent Treasury yields lower. Yields move opposite price.
The declines on negative economic reports have been modest, relative to recent rallies. But if the data continue to be negative and worsens, the reports could stir more fears of recession.
"The loss of economic momentum appears to have carried over into the first quarter. In light of both a quiescent inflation backdrop and a projected downshift in GDP, imply an increased likelihood that the Fed's next move in interest rates is lower," wrote Joseph LaVorgna, chief economist for the Americas at Natixis.