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Market Update

Currency Caution: Dollar Woes Front and Center Despite DJIA Topping 22,000

August 3, 2017

(Thursday Market Open) The six-day run of new all-time highs comes under threat today. Asian and many European markets fell overnight, lending a negative vibe heading into the U.S. session. Underlying the cautious tone is more weakness in the dollar, which sits at 15-month lows.

We have to be more and more concerned about the dollar. While a weak currency could represent good news for some U.S. companies that sell a lot of products overseas, it could mean that expectations of another rate hike fade more and more. Some might see rate hikes as speed bumps for the market, but they’re also a vote of confidence about the economy, and the dollar still reflects interest rates. Yields on the U.S. 10-year Treasury bond remain under pressure, falling to 2.24% early Thursday (see chart below). The euro hit a two-and-a-half-year high vs. the dollar above $1.19 on Wednesday, making the psychological $1.20 mark an interesting level to watch.

The Dow Jones Industrial Average ($DJI) posted its sixth-straight record-high close Wednesday, propelled above 22,000 for the first time thanks in part to Apple ($AAPL) carving out new record highs of its own. On the other hand, the Nasdaq ($COMP) and the S&P 500 ($SPX) looked pretty flat. Tomorrow’s jobs report (see below) is the next major piece of news that might act as a catalyst for the market.

AAPL’s earnings were the big story Wednesday, but today the buzz might be about Tesla ($TSLA), which reported better-than-expected results after the market closed. The company narrowed its loss significantly and pulled in almost 500,000 new orders. TSLA continues to draw a lot of investor interest even though it’s a speck compared with Ford ($F) or General Motors ($GM) in terms of vehicles sold. But it’s clearly in a growing business area, and shares rallied 6% in pre-market trading.

We’re more than halfway through earnings, and so far, about 70% of companies have beaten Wall Street analysts’ estimates. Once again, S&P Capital IQ has raised its estimate for average Q2 earnings per share, this time to 9.9%. Nine of the 11 sectors are on their way to positive performances, research firm CFRA said in a note Wednesday. Only consumer discretionary and utilities have missed the party so far. Retailers were among the stocks that struggled Wednesday.

On the earnings calendar today we’ll be looking at reports from Kellogg ($K), Allergan ($AGN), Aetna ($AET), Clorox ($CLX), Dish Network ($DISH), and Yum! Brands ($YUM), among others. Teva Pharmaceuticals ($TEVA) reported before the open and missed analysts’ projections. The stock fell 15% in pre-market trading.

Across the Atlantic, the big news is no news, as the Bank of England kept its key interest rate steady at 0.25% and maintained its current level of bond purchases.

Crude oil charged back Wednesday after falling 3% to below $49 a barrel at times on Tuesday. By this morning, it was flirting with $50 again. Weekly U.S. government numbers showed strong gasoline demand. As a reminder, gasoline usage can point to an increase in economic activity and maybe a busy summer driving season.

We haven’t talked much about $VIX the last few days, mainly because it’s been hanging around between 10 and 11 after falling below 9 to all-time lows late last month. It recently traded at 10.28, still a historically low point, and there’s little sign that markets expect volatility to develop anytime soon. However, with tomorrow morning’s monthly jobs report on the way, keep an eye on $VIX and other defensive monitors like gold and bonds as the market approaches the close today, because there might be a run toward protection ahead of the news.

Bond yields, Dollar


Both 10-year bond yields and the U.S. dollar index (blue line) have moved lower over the last three months. Falling bond yields arguably reflect concerns about U.S. economic growth and signs of the Fed turning more dovish. The dollar shows a similar reaction, but its weakness also comes from growth in overseas economies. Data source: NYSE, CME Group. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Up Next: Employment: With Apple and Tesla earnings in the rear-view mirror, the focus turns back to the U.S. economy early Friday as investors await July Non-farm payrolls. Consensus among Wall Street analysts is for jobs growth of 181,000, according to That would be just about spot on with the average monthly growth so far this year of 180,000, and would likely indicate continued firmness in the employment picture. However, the consensus for Friday’s report is down from June’s very solid jobs growth of 222,000. Keep an eye out for potential government revisions to previous numbers, by the way, as that’s always possible and could put a slightly different spin on things. 

Wage Watch: The other key component of tomorrow’s jobs report is wages, as average hourly earnings growth continues to look decent, but isn’t advancing as it typically does when unemployment rates fall toward current low levels. In June, hourly wages rose 0.2%, and consensus on Wall Street is for 0.3% in July, said. Over the last year through June, average hourly earnings are up 2.5%, and year-over-year growth in this category is likely to remain a key number for the Fed to watch as it ponders its rate strategy. The futures market shows less chance of another rate hike this year, with the odds at about 45% as of Thursday morning.

Two Key Indicators Not Sparkling: While the Dow Jones Industrial Average ($DJI) continues to rack up new records, two closely watched sector indices look a little tired. The Dow Jones Transportation Average ($DJT) has fallen sharply over the last two weeks since setting an all-time high on July 14, and the Nasdaq Biotechnology Index ($NBI) hasn’t really gone anywhere over the last month. In fact, the last time the $NBI set a new high was in July 2015. The $NBI can sometimes set the tone for the health care sector in general, and health care’s slight drop over the last month partly reflects biotech’s lack of contribution. Meanwhile the transports often serve as a decent proxy of overall economic activity. While this index was zooming higher earlier this summer, its recent swoon is worth watching for what it might tell us about the wider economy 

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