Friends
Stocks have had a somewhat sloppy week as traders try to decide if the recent bounce in the dollar is going to last or be very short-lived. As we know, the 2 year bull market has been built on a weakening dollar. We have seen the balance sheets of U. S. Corporations get stronger as balance sheets of developed countries continue to get worse. The falling dollar has also produced the amazing bull market in commodities, with industrial metals, oil and grains, as well as precious metals (gold and silver) rising seemingly every day over the past two years.
Well, this week we got a peak at what markets might do if the dollar would actually start to rise (stop laughing, it could and will happen someday – maybe sooner than some think). The “risk-off” trade reared its ugly head the past two weeks, and the result was a drubbing for commodities and some sloppiness in stocks. We have seen oil fall sharply, silver and gold get pounded and stocks of materials and industrial companies fall sharply. The ironic thing is the “risk-off” trade produced a nice rally in what we refer to as “defensive” stocks with the consumer staples and pharmaceuticals catching a bid as traders looked to find a “safe haven” with their “risk-off” proceeds.
All in all, the S&P 500 has held support at 1340 and looks to be heading slightly higher in pre-market futures trading. If the averages can hold these levels then the bulls may have something to build on. What seems to have happened is that money did not really come out of the market, it just keeps moving around to different sectors. The defensive staples have been the recipient of the latest rotation but the direction of the dollar will dictate where the money goes next. If the dollar starts falling again, the “risk-on” trade will be back in vogue and traders will rotate back to the commodity influenced trade. If on the other hand the dollar begins to climb, the commodity trade is in jeopardy and defense will be the name of the game.
For those who continue to clamor for a strong dollar, watch what you wish for. The consequences just may damage your financial well-being. A strong rise in the dollar, however remotely possible that seems to most, would cause traders to completely change their focus and subsequently could very much change the direction of various markets. The last two weeks just gave us a glimpse of the possibilities. Ah, never a dull moment. I guess we wouldn’t have it any other way.
Have a great weekend everyone and enjoy what looks to be some great weather.
