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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BobPaulson's picture

The David Lereah school of investment.

jbvtme's picture

seems like fear not greed is driving the markets

NotApplicable's picture


That's why.

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.


Colonel Klink's picture

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

EscapeKey's picture

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

oh, that is not the case? gee.

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?"

The Master's picture

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

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.

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.



disabledvet's picture

i go to site woo-hoo myself. here's what they've workin': 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....

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?

SheepDog-One's picture

'Buy more'? Yea in their one is buying this except a few computers which now control everything.

Downtoolong's picture

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

NotApplicable's picture

"Fed unwind" = The rubber band finally broke.

sodbuster's picture

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

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?

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.

orangegeek's picture

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


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.

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

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.

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.

mumbo_jumbo's picture

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