It is hard to explain this week’s sharp drop in equity prices in terms of the incoming economic data. True, following the surge in the 10-year Treasury yield that began last week, the sell-off in equities could be due to fears that higher interest rates would undermine economic growth. But that surge in yields followed the unexpected strength of September’s ISM non-manufacturing survey. Does that mean stronger surveys are now ultimately bad for the economy, because markets expect the central bank to raise rates so aggressively that good economic news is no longer good news?
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