More Good News Sends Stocks to a Three-Week Low

(MoneyWatch)  In my post on Wednesday I highlighted the tendency of stocks to fall on what seems like heartening economic data, such as the upward revision of U.S. gross domestic product announced that morning. I suggested that the monthly employment report due on Friday could yield a similar result.

But why wait? Another waterfall decline Thursday morning greeted the announcement that contracts for home purchases rose 6.4 percent in August, compared to July, and 12 percent from August 2008. That put the figure at a two-and-a-half-year high.

Yahoo Finance played this Associated Press item as its lead story and then changed to this one blaming the plunge of more than 2 percent in the Standard & Poor's 500-stock index on a dip in manufacturing activity. The Institute of Supply Management survey came in at 52.6 for September, compared to 52.9 in August.

The latest reading was worse than expected, but it was still a decline of less than one-third of a percentage point in an economy that is dominated by service industries anyway. Besides, the report on the housing market, which counts for more in this economy than manufacturing these days, exceeded expectations.

The market action is further evidence that plain, old good news is unlikely to be taken that way until there's a sizeable correction of the rally that began in March. In "Death of a Salesman," Willy Loman told his son, "It's not enough to be liked, you have to be well liked." That's how it is with economic reports too.

Read more:

• Economic Reports Give Wall Street Too Much of a Good Thing
• Expect Dow 10,000 to Be a Ceiling Rather Than a Floor
• Bullish Extremes Herald at Least a Steep Correction for Stocks