This week's biggest headlines on the economy continue a long string of negative news. On Monday and Tuesday, the top story in the Wall Street Journal was the possible bankruptcy of General Motors and Chrysler.

On Wednesday, it was a worsening outlook for the global economy on the eve of a summit of the world's 20 biggest economic powers. Two international agencies warned that global output will fall in 2009 for the first time since World War II. The Organization for Economic Cooperation and Development predicts that the world economy will shrink by 2.75 percent this year, with the 30 industrialized countries it tracks tumbling 4.3 percent. The World Bank projects a global contraction of 1.7 percent.

Here in the U.S., there's more grim news on the job front. New claims for unemployment benefits jumped last week to the highest level since the 1982 recession, while total claims soared to a record peak. It's possible that job losses for March, to be announced tomorrow, will exceed the number for December, which had the largest monthly drop in six decades.

Jobs are critical. So are home prices, which have continued to tumble according to another report this week, although home-sales volume shows signs of stability.

But there's some good news too. We were struck by a Wall Street Journal article saying that consumer lending has actually increased in numerous mid-size cities around the U.S. To be sure, lending conditions generally remain pretty tight, and those who can get loans are considered low-risk borrowers. But many of the higher-lending areas rank well by such measures as diverse employment, lower costs and rising job earnings.

For the financial markets, another positive development is a key, long overdue decision to ease rules that force banks to write down the value of assets based on the most recent trades. The Financial Accounting Standards Board today relaxed mark-to-market rules, which could encourage banks more active credit-related assets trading as well as greater lending activity.

The FASB will now allow companies greater leeway in determining the "fair value" of their assets and makes it easier for companies to avoid having to take big write-downs against earnings when they suffer losses on their investments.

In essence, this move gives banks and other financial institutions more time to deal with troubled mortgage, consumer and corporate loans on their books. This seems to go against the intent of the recently announced plan by the U.S. Treasury to help banks get rid of those same toxic assets. Even so, the bottom line is more flexibility and more liquidity, which are what our financial system needs now.

The latest positive development involves today's joint announcement by the leaders of the Group of 20 nations of various measures designed to stimulate global growth. The leaders pledged $1 trillion in emergency aid to cushion the economic fallout. This comes in the form of tripling the International Monetary Fund's lending power to $750 billion, plus a $250 billion expansion in the IMF's reserve currency. The leaders also agreed on a blueprint for financial regulation. However, there remain numerous unanswered questions and necessary follow-up steps. 

­­­­­­­­­­­­­­­­­­­­­­­Global Markets Continue to Improve

News on the economy remains generally downbeat, albeit with some positive glimmers. Yet investors in stocks are starting to see the world a bit differently—and more positively—than the headlines would indicate.

Of course many worries remain. For example, the next few weeks will be full of corporate earnings reports for the first quarter plus outlooks for the rest of the year. We already know that profits will be terrible, although likely not as bad as they were for the fourth quarter of 2008.

But the composite earnings number of the companies in the benchmark Standard & Poor's 500 index simply doesn't provide a reliable picture these days. Reason: The numbers are wildly distorted by both various types of write-downs and the results of badly damaged companies.

As we pointed out here back in February, the S&P 500 is weighted by market capitalization. So Exxon Mobil, for instance, has a much bigger impact on the index's price movement than, say, Citigroup. But S&P calculates earnings dollar for dollar, ignoring market weighting. So if Exxon Mobil earned $10 billion while Citigroup lost $10 billion, the net result would be no profit even though investors hold much more stock in Exxon Mobil than they do in Citigroup. The dismal earnings performance of companies with small market capitalization yet huge losses has a significant impact on the S&P 500's valuation, yet minimal impact on the index's price performance.

This is the key point: The financial markets are now performing better, regardless of how one chooses to interpret news developments, headlines, the national mood and other factors.

The rally that began four weeks ago has gained a second wind this week after its sharp decline on Monday. Commodity, technology and emerging-markets equities have led the way. But now the rally shows signs of broadening. It's interesting to see that consumer stocks have started to join in even though news of depressed consumer spending is abundant. Amazingly, consumer electronics and restaurant stocks have been among the better industry groups of late.

Last week, we wrote this: "The next major test for the stock market will be how well it survives bad news, or to put it another way, news that's considerably worse than expected. And bad news doubtless will come."

Tomorrow will provide a key test, with the release of the job-loss numbers for March.