Is the Dollar Down for the Count?

December 6, 2020

Weekly Market Outlook

By Keith Schneider

The dollar is crumbling,
US Long Bonds are teetering,
inflation is bubbling, and
equities globally seem quite content, or for that matter, thrilled.

US stocks closed on all-time highs, and many foreign markets did even better this past week

Most noteworthy are the new themes that are taking hold.

The first one is that US equity leadership has passed the baton to foreign markets, which have had the most impressive gains recently on a relative basis.

Other new themes in the US are the continuing leadership by the SMID caps (Small and Mid-Caps).

Value stocks also seem to be arousing from a decade long slumber.

This is interesting because value stocks generally perform well during recessions and bear markets. However, we are hardly in the throes of a bear market now.

The highlights of this week’s market action are the following:

• Risk gauges remain in full risk-on mode.
• All the key indexes closed the week at all-time highs, with the IWM and the QQQ’s each up over 2% for the week.
• Volume patterns show major accumulation in Small Caps while the Large Caps ETF (SPY) has had zero accumulation days over the past 2 weeks.
• Market internals are strong, but not overbought.
• Value stocks (VTV) continue to hold recent breakout levels versus growth (VUG).
• Semiconductors (SMH) continues its multi-year leadership while Utilities (XLU), the classic safety play, continues to stumble down -2.1% for the week and down -3.4% for the year.
• US Long Bonds are testing recent lows and looking very vulnerable.
• Emerging Markets led by Latin America (ILF) continues to tack on gains while outperforming US stocks.
• The dollar continues to retreat, hitting multi-year lows against most major currencies, although it may be a bit oversold short-term.

Considering how hungry the economy is for new stimulus, let’s see how long equities can ignore the jump in rates on the US long bond.

Best wishes for your trading.