Crescenzi: Investors Are Shrugging Off Bad News

Today's rally in equities highlights the process by which investors are becoming/will become numb to weak economic news.

That's a function that will be very necessary between now and the end of the year, if equities are to continue rallying, given the high chance that economic data will worsen in the time ahead.

In particular, the collective turning of backs on today's jobless claims, which have moved increasingly higher in recent weeks, supports the idea that investors are coming to terms with the idea that the U.S. economy will be very weak in the time ahead.

Many forecasters have helped pave the way on the numbing process, forecasting that the economy's gross domestic product could decline as much as 2.5 percent at an annual rate in the fourth quarter (Merrill's recent forecast), with many firms looking for flat or down numbers.

Numbers to support such bad readings are yet to come, in particular big declines in the monthly payroll numbers.

The key to making money in riskier assets between now and the end of the year is this: to decide whether investors are in fact ready for the bad news to come, thanks in part to the jobless claims figures and other data, and when it appears the bad news is priced -- step in and buy.

This is what has worked in past recessions. A day like today indicates that the time to buy is either upon us or getting closer. Toeing into the idea is beginning to make sense, although given the likelihood of bad economic news ahead, it makes sense to also wait for additional tests of whether investors have truly become numb to weak economic news.

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Tony Crescenzi
Tony Crescenzi

Tony Crescenzi is the Chief Bond Market Strategist at Miller Tabak + Co., LLC where he advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. Crescenzi makes regular appearances on financial television stations such as CNBC and Bloomberg, and is frequently quoted across the news media. He is also the author of the forthcoming book, "Investing from the Top Down," "The Strategic Bond Investor," and co-author of the 1200-page book "The Money Market."Crescenzi is a contributor to"