US Economy Contracts in the 1st Quarter 2014, But Stocks are at Record Highs!

Has any expert anticipated this?

Chart from Tradingeconomics.com

From Bloomberg:

The economy in the U.S. contracted for the first time in three years from January through March as companies added to inventories at a slower pace and curtailed investment.

Gross domestic product fell at a 1 percent annualized rate in the first quarter, a bigger decline than projected, after a previously reported 0.1 percent gain, the Commerce Department said today in Washington. The last time the economy shrank was in the same three months of 2011. The median forecast of economists surveyed by Bloomberg called for a 0.5 percent drop.

This m-o-m data has originally shown a scanty .1% growth in 1Q14 which I said has been the significants effects of the Emerging Market contagion but had been revised lower. The y-o-y data still shows a positive but unimpressive 2% growth.

Has the stock market factored this in? Apparently not. And perhaps they never will. That’s because some major indices like the Dow Industrials and the S&P 500 are at record highs.

But again like all rationalization, this slowdown has been justified as an anomaly brought about by weather.

From the same article:

A pickup in receipts at retailers, stronger manufacturing and faster job growth indicate the first-quarter setback will prove temporary as pent-up demand is unleashed. Federal Reserve policy makers said at their April meeting that the economy has strengthened after adverse weather took its toll.

“Will prove temporary’'” exudes  the confidence to justify stock market actions. So the “growth” story, whether real or not, has metastasized into a fairy (DEBT) godmother meant to justify stocks market prices bound for the never-never land.

Also the above divergences serves as more evidence that the stock market hasn’t about the economy. Today's world has been warped into parallel universes.