Good Economic News Finally Arrives

Last Updated Feb 3, 2011 5:44 PM EST

(This article is part of a series on how to view economic news. To see why you shouldn't react to such news, see Wednesday's post "Why Good Economic News Isn't a Good Indicator for Stocks.")
It looks like the good recent economic news is causing investors to jump back into stocks. Many investors fled the equity markets after the recent financial crisis and continued to run away despite the strong rally we've been experiencing since the low of March 9, 2009. The S&P 500 Index closed March 9, 2009 at 676. The price-only index is up 86 percent since then. Including dividends, the return would be even higher.

However, now that good news appears on the horizon, many investors are plowing back into stocks. In the past three weeks, equity funds have had inflows totaling $18.8 billion, while bond funds have only seen $1.2 billion.

Here's a quick recap of some of the reasons why investors appear to finally be convinced that the economy is now on safer ground:

As you can see, many investors are seeing past the usual doom and gloom reported by the financial media. However, jumping back into stocks just because of a few good headlines is a poor strategy. Tomorrow, we'll see why this good news isn't necessarily a good sign for your investments.

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    Larry Swedroe is director of research for The BAM Alliance. He has authored or co-authored 13 books, including his most recent, Think, Act, and Invest Like Warren Buffett. His opinions and comments expressed on this site are his own and may not accurately reflect those of the firm.