Stocks Rally As The Dollar Falters

The stock market completely ignored Trump’s $500 billion tariff threat and the fact that the tariffs on $34 billion worth of Chinese goods kicked in on Friday. Every action thus far has been small. This was a sell the bluster, buy the action trade. Unless the larger tariffs that have been threatened get enacted, there won’t be a large effect on the economy. Stocks will fall whenever the chance of large tariffs increases because of a public statement made by a major geopolitical power. The market also powered through the potential for a hawkish Fed as there is a 52% chance the Fed raises rates at least 4 times in 2018. That’s not to say there aren’t bullish catalysts for stocks to move up. Most economic data points look good and earnings growth remains strong.

The S&P 500 increased 0.85% and the Nasdaq increased 1.34%. Every sector was positive in the S&P 500 as healthcare and technology led the way, posting gains of 1.45% and 1.24% respectively. The S&P 500 is about 1% away from the June and March highs. Generally, triple tops don’t occur which would mean, technically speaking, a breakout will likely occur next week. If that occurs, the even tougher resistance which is the all-time high comes into play. We’ll review that after the June levels are surpassed. The CNN Fear and Greed Index is only at 40 which signals fear. That’s great news as it means the market has room to take out the June high without getting extremely overbought. The index will probably be in the 50s if the S&P 500 moves up 1% on Monday.

Dollar & Treasuries

I haven’t reviewed the dollar in the past few days. It has been declining as the index went from $95.39 on June 28th to $93.96 on July 6th. The S&P 500 has moved up in that period which makes sense because the strong dollar is a headwind for the internationally focused S&P 500 firms. If the dollar falls to $90, it’s more likely that the S&P 500 will hit a new record.

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