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Stocks continued to grind higher in May as stock buybacks and low interest rates offset weak economic news and more financial turbulence in Greece. Chinese stocks continued to surge forward even as economic growth weakened further. But the economic weakness there has actually been the trigger for the stock market gains as investors believe that the central bank will have to cut interest rates further in order to get growth turned around, and those lower interest rates drive money into stocks. The sharp gains for Chinese stocks in the past year while economy conditions there continue to worsen clearly shows how investors have become overly dependent on the largesse of the low interest rate policies of the central banks, leading once again to the anomalous situation where ‘bad (economic) news is good (stock market) news! It is basically the ‘same game’ played by the US Federal Reserve with their three rounds of quantitative easing as well as the 2015 QE program introduced by the ECB in Europe and the ‘Abenomics’ policies in Japan. All of these programs have contributed to the upward move in stocks. But while stocks are trading near recent highs in many major markets, the gains have been uneven. While U.S. stocks are near all-time highs, they are really just at the top end of the trading range they have been in since late last year. European stocks have had a stellar year but have also stumbled a bit recently, with the German Dax Index trading down over 8% from its peak after the Euro currency stopped falling against the U.S. dollar. Canadian stocks have been held back by the drop in the Energy sector even though the weaker Canadian dollar should give a boost to the manufacturing and exporting sectors. (more…)