Home Economics Good Economic News Can Be Bad for Wall Street [STUDY]

Good Economic News Can Be Bad for Wall Street [STUDY]

When you purchase through our sponsored links, we may earn a commission. By using this website you agree to our T&Cs.

COLLEGE PARK, Md. (Feb. 13, 2018) — Good economic news does not always translate to stock market gains, which can baffle even the president of the United States. “In the ‘old days,’ when good news was reported, the Stock Market would go up,” President Trump tweeted on Feb. 7, 2018, during a historic Wall Street correction. “Today, when good news is reported, the Stock Market goes down. Big mistake, and we have so much good (great) news about the economy!”

Get The Timeless Reading eBook in PDF

Get the entire 10-part series on Timeless Reading in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Accounting professor Rebecca Hann at the University of Maryland’s Robert H. Smith School of Business, says share prices often drop when companies collectively exceed expectations — even during the good old days. Her research traces the counterintuitive market reaction to the influence of Federal Reserve monetary policy.

She says savvy investors understand that the Fed likes to raise interest rates during growth periods, which tends to drive stock prices downward. So investors brace themselves for the impact following a robust earnings season — like waiting for the other proverbial shoe to drop.

“When earnings news is good, investors anticipate that the Fed is going to take action,” Hann says. “It’s about expectation.”

In a recent paper, published with two Smith School PhD students in the Journal of Accounting and Economics, Hann quantifies the link between earnings surprises and monetary policy using Federal funds futures data.

She says the information is useful because it can help analysts forecast the Fed’s monetary policy. “Everyone watches the Fed’s next move,” she says.

Our Editorial Standards

At ValueWalk, we’re committed to providing accurate, research-backed information. Our editors go above and beyond to ensure our content is trustworthy and transparent.

Sheeraz Raza

Want Financial Guidance Sent Straight to You?

  • Pop your email in the box, and you'll receive bi-weekly emails from ValueWalk.
  • We never send spam — only the latest financial news and guides to help you take charge of your financial future.