Every day equity markets face a good news/bad news test that tells observers a lot about investor sentiment. Is news that is bad for the economy taken as good for equities, or as negative for corporate profits?

Friday’s US second quarter gross domestic product numbers were a case in point. At first sight, the slowing of GDP threatens the pace of profit growth and hints at the possibility of a recession in 2007. But the three main equity indices all gained 1-2 per cent on the day.