Stocks have returned to a “bad news is good news” regime.

That’s according to a new study from Goldman, which analyzed asset-price sensitivity to inflation and growth data.

There were a number of key takeaways, but one that grabbed a few headlines on Monday was the implication that JPMorgan’s acquisition of First Republic flipped the script for equities in terms of market reactions to incoming macro releases.

“While the first five months of 2023 generally saw positive reactions to better growth data in equities — and negative reactions to worse growth data — this gave way to consistently perverse reactions over the last three months,” Goldman’s Spencer Hill said. “Put another way, since the acquisition of First Republic and the removal of the associated tail risks for the US economy, equity futures have tended to rally on weak growth data.”

That’s intuitive. When there’s a left-tail risk in the process of realizing (in this case the mini-bank crisis), incremental evidence of economic deceleration is insult to injury — bad news is just bad news. When the tail risk is removed in an environment characterized by above-target inflation, the hawkish read-through of good news for monetary policy is no longer offset by the prospect of a growth shock.

As Hill put it, “Our preferred interpretation is a return to ‘Bad is Good’ in equities.” He went on: “As fears of an imminent hard landing abate, equity investors may actually prefer soft growth data, because growth above the 1-2% channel of 2022 would make additional rate hikes more likely.”

Growth in Q2 was above that channel.