Liquidity Driven Stock Rally
And this trend of sharply rising stock prices despite mediocre news isn't just something that happened yesterday. Stocks have become much more expensive the latest year as they have increased more than 20% even though earnings are up only about 5%.
But as the story points out, what really drives the market is liquidity, which is to say rapid monetary expansion which at this stage mainly bids up asset prices. This is because the newly created money is generated by the debt creation that finances M & A activities. The M3 money supply measure is of course discontinued now, but if we look at the broadest still available money supply measure, the MZM (Money at Zero Maturity, which is M2 minus small time deposits plus institutional MMMF:s) it is increasing at a rate of more than 10% in America. As the article points out, what ignited the acceleration in monetary growth was the decision by the Fed last August to hold interest rates unchanged for the indefinite future.
The Fed, it seems, is again trying to re-inflate a new bubble.
UPDATE: Given that one of the pretexts used for the rally was stronger than expected sales at Wal Mart, one would have expected (assuming the pretext had any truth in it) stocks to sell off today when it was reported that overall retail sales were much weaker than expected. Yet stocks have in fact risen even further today. I rest my case....