Stag Party Investors had come to accept that a slowing would take place and that it would be shallow and short-lived. Of course, they understood that the deceleration was going to hurt company profits, but the stock market moves on perceptions of the future. And as long as a recovery could be expected in the latter part of 2001 or perhaps 2002, investors were happy to hold stocks. To be sure, that balanced recovery may come. Greenspan may still bring everything back to equilibrium.
Most economists expect better economic growth after a couple of quarters of sluggishness.
The buoyancy implied by the high PPI indeed suggests that the economy is rebounding. Then there's the argument that the big rise in the PPI is a flash in the pan caused by extraordinary factors. High energy prices were a big contributor. As a result, to worry about inflation at this point is absurd, they argue. And Friday's bond market action suggests that fixed income investors have zero concern that inflation is back.