Market Continues To React Positively To Bad News

There is a saying in the market that its not the news that's important, but how stocks react to that news. For most of this decline, bad news sent stocks spiraling lower. But recently, stocks have started to shrugg off bad news and move higher. This is a noticeable change in character.

Yesterday morning there was a lot of bad news, economic reports, etc. The Dow opened down 180 points, but by the close it was up +270. This morning we have seen more bad news reported, and the Dow opened down -100 but is now back in positive territory.

Moreover, the nations's biggest retailers reported terrible same-store sales results for November. Many of them posted double-digit declines. Yet the retail index is +5.0% higher this morning. That is a huge move, and indicative that maybe stocks have fully discounted all the bad news that is out there right now.

In central bank news, the Bank of England cuts its target lending rate by 100 basis points to 2.00%; the ECB cut its rate by 75 basis points to 2.50%; and Sweden's central bank cut its target rate by 175 bps to 2.00%. So its clear that central banks around the globe are working together to pump liquidity into the system to stimulate growth. I continue to think these efforts will be successful in time.

Capital One (COF) is buying Maryland-based Chevy Chase Bank for $520 million in cash and stock.

And the big news last night was this plan that leaked from the Treasury of a big effort to buy Fannie/Freddie paper and bring mortgage rates down to 4.5% which would stimulate the purchase of new and existing homes. The details of any such plan are still unclear.

Asian markets were mixed overnight. The Yen is higher again this morning (I want to see it move lower). Oil is also lower, trading around $45.50. The 10-year yield is also a bit lower to 2.65%. And the VIX is up slightly to 61.0, sitting right on its 50-day support.