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Has the Market Lost Its Mind? Why Bad News Has the Dow Surging Today

Andrew Tonner
June 14, 2012

Investors who claim markets are perfectly rational would have a hard time explaining where we find ourselves at midday today. Despite negative economic news coming from multiple continents, U.S. stock markets are off to a strong start today. Approaching afternoon on the East Coast, the Dow Jones Industrial Average (INDEX: ^DJI  ) has added to initial gains, gaining nearly 0.9% so far today. Similarly, both the Nasdaq and S&P 500 have also jumped midday to the tune of 0.6% and 0.8%, respectively. Adding to the bullish case, the market's "fear gauge," the VIX (INDEX: ^VIX  ) , also traded lower by 1.4%. Sounds great across the board, right? Not so fast.

In stark contrast to the market's ebullient rise, today's newswire paints a bearish picture. Since the start of the day, we've seen nothing but negative news emerge on both sides of the Atlantic. In Europe -- the main driver of the market lately -- Spanish borrowing costs flirted with the dangerous 7% threshold, only days after the country announced arrangements for $100 billion in relief for its troubled banking system. Although it's impressive (that's a lot of zeros), clearly credit markets aren't quite as awed. Borrowing costs rising to unsustainable levels is especially worrying since Spain still needs to refinance 82.5 billion euros' worth of debt by year-end, making further deterioration of the already-fragile fiscal situation seem all the more plausible. Stateside, American jobless claims also came in higher than expected, ris