Stocks Surge as Economy Sags, Investors Bail

Corrected: It’s Senate Majority Leader Mitch McConnell.

I can’t remember a single time in recent years when the stock market, the economy, politics, and investors’ behavior were less in sync.

On Friday, the second revised GDP report for the first quarter of 2017 showed a 1.2% annual real increase—double its first estimate of 0.6%, but still pretty feeble. Meanwhile, durable goods orders dropped 0.7% in April, a bad sign for the second quarter but in line with the weak “hard” economic data I wrote about  in my MarketWatch column this week.

Yet The Dow Jones Industrial Average, Standard & Poor’s 500 index, and Nasdaq Composite index rose six days in a row through Thursday, and the latter two again hit record highs.

So, how did investors react? They sold $3.3 billion worth of U.S. stocks this week, according to Bank of America Merrill Lynch, after having unloaded $9 billion last week. Maybe they’re selling on the good news, but I doubt it: According to the Investment Company Institute, they’ve been pouring money into underperforming foreign stocks, particularly emerging markets, for years.

And the prospects in Washington for health care reform, tax reform, and infrastructure (key pillars of the Trump rally) are fading.

How do we sort this all out?

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