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Goldman "Proves" That "Good News Is Good For Equities, And Bad News Is Good For Equities"

Tyler Durden's picture





 

While anecdotally we see again and again that equities rally on bad news (The Fed will save us) and good news (see The Fed saved us), none of that matters until it gets the Goldman Sachs stamp of approval. Sure enough, in a detailed study over the weekend, designed to defend their bullish equity view (specifically financials) and expectations for QE3 to continue to Q3 2014, the bank that does God's work offered up these pearls of statistically sound wisdom: "while equity prices respond more to dovish surprises than hawkish surprises, the results suggest that equity prices typically go up regardless of whether the Fed policy surprise is positive or negative (“good news is good for equities, and bad news is good for equities”). But it is not at all clear why the equity market should systematically buy into this pattern." So rest assured, buying wins; of course, that is, until it doesn't.

Via Goldman Sachs,

...

 

Specifically, we find that a 25bp surprise [or QE implied equivalent] is usually associated with a 1% change in equity prices on the same day.

 

...

 

Taken literally, these results suggest that equity prices typically go up regardless of whether the Fed policy surprise is positive or negative (“good news is good for equities, and bad news is good for equities”).

 

Asymmetric Fed communication might help explain some of this pattern. When policy is tightened, Fed commentary tends to be bullish on the outlook and thus helps prevent equities from selling off. But when the funds rate is cut, Fed commentary is not correspondingly downbeat and so equities rally a lot. This asymmetry in Fed commentary, in itself, is not surprising as Fed officials are usually intent on emphasizing dovish policy changes (to help stabilize the economy) and downplaying hawkish ones (to avoid destabilizing markets).

 

But it is not at all clear why the equity market should systematically buy into this pattern.

 

An alternative explanation is that the asymmetry in the equity price effect is simply a statistical mirage due to a small sample that is driven by outliers.

 


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Mon, 05/20/2013 - 11:09 | Link to Comment francis_sawyer
francis_sawyer's picture

Buy MOAR stawks...

Mon, 05/20/2013 - 11:12 | Link to Comment BobPaulson
BobPaulson's picture

The David Lereah school of investment.

Mon, 05/20/2013 - 11:15 | Link to Comment jbvtme
jbvtme's picture

seems like fear not greed is driving the markets

Mon, 05/20/2013 - 11:22 | Link to Comment NotApplicable
NotApplicable's picture

Why? POMO & FOMO, MOFO!

That's why.

Mon, 05/20/2013 - 11:29 | Link to Comment King_of_simpletons
King_of_simpletons's picture

Shouldn't the buyers run out of money, one day ?!

The market is a joke. Let's call the indices what it should be callled: Dow Joke, Nasdaq Joke, S&P Joke etc.

 

Mon, 05/20/2013 - 11:39 | Link to Comment Colonel Klink
Colonel Klink's picture

How would the buyers run out of money when they can conjour it out of thin air?

Mon, 05/20/2013 - 11:24 | Link to Comment Aeternus
Aeternus's picture

Is it time to start buying PUTS yet?

 

http://www.youtube.com/watch?v=deuC8GPr31A

Mon, 05/20/2013 - 11:11 | Link to Comment EscapeKey
EscapeKey's picture

oh i guess the market must go down with a lack of news.

oh, that is not the case? gee.

Mon, 05/20/2013 - 11:11 | Link to Comment slaughterer
slaughterer's picture

Can we even imagine anymore the oppositie, an algo playing field where: "Good news is bad for equities, and bad news is bad for equities?"

Mon, 05/20/2013 - 11:18 | Link to Comment The Master
The Master's picture

Can I imagine "reality?"  No, no I can't.  Sad.

Mon, 05/20/2013 - 11:14 | Link to Comment rayban
rayban's picture

If Bernanke stops QE4ever there will be a stock market crash of epic proportions. 1929, 1987 and 2008 will look like a picnic.

And Ben knows it. That's the reason behind his "premature" exit. It won't happen any time soon. Certainly not during his watch.

Mon, 05/20/2013 - 12:34 | Link to Comment moneybots
moneybots's picture

The market has gone parabolic and i would think there is a limit as to how parabolic they can run it before it collapses.

Ben didn't do a very good job of preventing a market collapse in 2008.

Another article posted here said the current rally is all Japan.  If that opinion is correct and an unintended consequence of Abenomics pops up, the parabolic move could fail regardless whether Ben has left or not. The Nikkei is supposedly up 70% in 6 months, a huge move in a short time.

Back in 2008, trader Phil Grandy was expecting a major decline in the market, but said at teh time that "they" would hold the market up until after the election.  The market crashed going into the election.

 

 

Mon, 05/20/2013 - 11:20 | Link to Comment Dr. Engali
Mon, 05/20/2013 - 11:27 | Link to Comment disabledvet
disabledvet's picture

i go to site woo-hoo myself. here's what they've workin': http://www.youtube.com/watch?v=XBw25CrUS-o i've heard Marc Faber is little as well...having never met the man however i can't say i know this for a fact however. of course the irony that you could just to yoo-hoo news "buy low/sell high" is not lost on me either. how does that song go again? oh yeah....http://www.youtube.com/watch?v=XBw25CrUS-o

Mon, 05/20/2013 - 12:48 | Link to Comment moneybots
moneybots's picture

I commented on this idea yesterday in response to another ZH article.

Things always look worst at the bottom of a bear market.

Going into the parabolic gold run in 2011, radio ads hawking gold were pontificating how gold was predicted to run to 3,000 and some are even predicting 5,000 gold.

Now having hit 1,300 gold is trash.  The blood is in the streets.

Don't they say the best time to buy is when the blood is in the streets?

Mon, 05/20/2013 - 11:19 | Link to Comment SheepDog-One
SheepDog-One's picture

'Buy more'? Yea in their dreams...no one is buying this except a few computers which now control everything.

Mon, 05/20/2013 - 11:19 | Link to Comment Downtoolong
Downtoolong's picture

No confirmed news of a Fed unwind is the only news.

Mon, 05/20/2013 - 11:29 | Link to Comment NotApplicable
NotApplicable's picture

"Fed unwind" = The rubber band finally broke.

Mon, 05/20/2013 - 11:24 | Link to Comment sodbuster
sodbuster's picture

Fed unwind? HA! No one escapes unscathed. Welcome to the Bernanke Bubble.

Mon, 05/20/2013 - 11:31 | Link to Comment 1eyedman
1eyedman's picture

what everyone knows is not worth knowing.  everyone knows its the 'fed unwind' that will send stocks/bonds down.  but the fed doesnt want stocks/bonds to go down.   

 

so seriously, what might trigger any kind of pullback (2-3% would make for a much needed infusion...selling at the top of the channel has been death).  

some bank 'surprises' with a need for liquidity?  thats an old problem, that doesnt even matter now, its normal.  so then what?  high deficits?  doesnt deter buyers, or rather, encourage anyone to sell.   is it just some point at which pro managers say 'ive made enough' this year/qtr/month...and the tide ebbs??   

what could cause fear and eliminate the complacency?

Mon, 05/20/2013 - 11:44 | Link to Comment Xue
Xue's picture

One of the symptoms of a bubble is that the overvalued asset goes up in price whether we have good or bad news.

Mon, 05/20/2013 - 11:48 | Link to Comment orangegeek
orangegeek's picture

NASDAQ100 Daily is ungoing the same "nothing but up" as it did at the start of 2012.

 

http://bullandbearmash.com/chart/nasdaq100-daily-rises-into-parallel-bul...

 

There really isn't much to analyze these days - fast drop in the morning followed by "nothing but up" for the day.

 

Forget about fundamentals too - they all point up regardless.

Mon, 05/20/2013 - 11:51 | Link to Comment thismarketisrigged
thismarketisrigged's picture

its such a joke.

 

every day its the same thing. we r either flat, or up triple digits.

 

can anyone on here remember the last time we had a red day due to fundemental reasons?

 

its so sickening. 

 

when the fuck will the end? i feel like this will never end and i am fucking pissed

Mon, 05/20/2013 - 11:59 | Link to Comment WhiteWolf
WhiteWolf's picture

July 4, 2013.  Everyone at midnight lets all take our 12 guage shotguns and blow em off promptly at midnight.  No not up so that they can hurt anyone but straight into the ground towards hell the government and central bankers are taking us.  All at once.  Let them HEAR the power of 300Million plus weapon discharged at one time towards he US Government, their banking cartels, their  Federal Reserve, their faggot IRS agents.  I think if they hear the sound of 300Million plus discharges they will understand that we have had enough.  Who is in?  Lets let them know how worthless their Natl Guard would be against 300Million weapons discharged at one time.  Here Here for LIberty.

Mon, 05/20/2013 - 12:44 | Link to Comment NEOSERF
NEOSERF's picture

Goldman who like its brethren who have no trading loss days EVERY month and quarter would prove that ANY news is good news...just make sure your whales are on a tight leash.

Mon, 05/20/2013 - 17:44 | Link to Comment mumbo_jumbo
mumbo_jumbo's picture

the market moves on good/bad news????   WTF? so is the meme that the market is "forward looking" still apply?

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