So far, the the stock market has avoided the spring slumped it had experienced during the past three years.
This has happened even despite the deterioration in much of the global economic data.
Art Cashin, UBS Financial Services Director of Floor Operations asked around to see what traders thought was behind this (emphasis added):
Is This The Reinhart/Rogoff Rebuttal Rally? – Two weeks ago, the financial world seemed to be a much different place.
Stock markets on three continents were sputtering and appeared to be on the verge of a Spring swoon. Gold, oil, copper, and a variety of other commodities appeared to be in virtual freefall. Economic data around the globe seemed to weaken noticeably and universally. Deflation was a key topic.
Now markets around the globe are displaying a new buoyancy. Yields on government bonds have fallen to stunning lows as bidders outdo each other at auctions of what was recently looked upon as sovereign debt with near-junk status.
What has changed things in the last two weeks?
Some point to growing optimism that Italy might finally be able to form a government. Others cite the fact that the G20 appeared to give the BOJ a hall pass on their re-inflation efforts.
A few even point to Merkel slipping in the polls, possible decreasing the power of the “austerity first” crowd.
Some traders, however, think that the new rally really kicked in when news that a graduate student had found flaws in the Reinhart/Rogoff paper on the limiting power of public debt on the economy – thus casting doubt on that thesis.
As the rebuttal made headlines, markets rallied – especially in Europe – as cries that austerity had seen its day came from leader after leader.
Was it really the rebuttal that moved markets? We may never be able to prove it conclusively but the timing seems like a perfect fit. Maybe we should ask a graduate student to look into this.