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Sell-Off Evidence That Stock Market Now Depends on 'Stimulus'

The global stock sell-off that followed hints the Federal Reserve may trim its stimulus soon underscored how much the prior rally wasn't based on economic fundamentals, which, data Thursday showed, remain shaky.

Markit's manufacturing gauge for China swung back to contraction in May after six months of tepid expansion. Eurozone private-sector activity shrank at a slower pace but indicated the recession will continue into Q2. U.S. factories grew more slowly as exports fell.

The reports came a day after Fed chief Ben Bernanke told Congress that bond purchases, or quantitative easing, could be scaled back "in the next few meetings" if the labor market keeps improving. Minutes from the Fed's last meeting revealed several officials are willing to cut QE as soon as June.

Source: Investors Business Daily. Read full article. (link)

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