Dollars and Sense – rates, bond, stock

Dollars and Sense – rates, bond, stock

Tuesday it was discovered that the US Trade gap got shockingly wider in March. This pretty well guarantees that Q1 GDP will be revised down into negative territory. And so far there is no evidence of a strong bounce back in April or May…which is why stocks have been lackluster.

If you are looking for a clear reason for this weakness, then look no further than the sharp increase in the dollar starting last November. This explains weakness for exporters as US produced goods became that much more expensive thus lowering demand. This is what happens when the central banks from most other major economies sign up for the “all you can eat QE buffet” whilst our Fed is heading in the other direction. And yes, higher rates in the US would only make this problem worse.

Gladly, the US dollar has fallen about 7% from the peak in early March. If that trend continues, then our economy should perk up with stocks pushing to new highs. If the dollar begins to rise again, then don’t be surprised with more lackluster economic data and a stagnant stock market.

Long story short, keep an eye on the movement of the US dollar as a likely indicator of where stocks are headed

http://www.zacks.com/

 

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