Stock Market: The Teflon Rally

This morning we saw some thunderstorms on the stock market horizon. Last night Japan`s stock market index Nikkei plumped 7.3% (minus 10% from the intraday high), China reported that manufacturing surprisingly contracted in May and Wall Street was still digesting yesterday`s signals that the Ben Bernanke and his Federal Reserve Bank could end their stimulus program QE3 soon. "Fear rang the door bell", wrote one commentator (thereformedbroker).

But the Japan Crash didn`t roll over the ocean, Wall Street barely blinked. The indices Dow Jones, Nasdaq and S&P 500 recovered soon from their morning losses and finished the day almost unchanged (Dow Jones minus 0.08%, S&P 500 minus 0.29%, Nasdaq minus 0.11%).

This must again disappoint those who are waiting for a sharp correction of this rally. One the leading link connections linked to a post with the title "Extreme Fear" (ritholtz  joefahmy ). But there was no panic, instead the confidence came back.  Strong news from the U.S. economy calmed the nervous sentiment. Housing data showed builders sold more U.S. new homes than projected in April, wrote Bloomberg (bloomberg). A separate report showed fewer Americans than forecast filed applications for unemployment benefits last week, a sign that the job market is sustaining recent gains (bloomberg).

The sanguine response to the unnerving early morning underlines again that the rally moves on much stronger fundaments than many think. The new U.S. data prove that the global economic upswing continues.  In the recent weeks we also learned that companies  can squeeze out more profits even in a sluggish economy. And interest rates stay close a record low. Bernanke´s Fed won`t stop their stimulus program if the economy would stumble. Yes, we will get the usual correction - sometimes. But I reckon it will be short and mild as the corrections in the recent months. The teflon rally will continue.