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The dollar holds the key to a burgeoning bull run in stocks: Morning Brief

The dollar holds the key to a burgeoning bull run in stocks: Morning Brief

This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Thursday, December 1, 2022

Today’s newsletter is by Jared Blikre, a reporter focused on the markets on Yahoo Finance. Follow him on Twitter @SPYJared. Read this and more market news on the go with Yahoo Finance App.

For stock market investors, November finished with a bang.

A late-day rally on Wednesday swung the Dow into what some will consider bull market territory, defined as a 20{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} rally off recent lows.

In November, major U.S. indexes posted respectable gains for the month, with all eleven S&P 500 sectors closing in the green. The Dow finished up 5.7{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}, the S&P 500 up 5.4{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}, and the Nasdaq Composite up 4.4{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.

SPDR S&P 500 Sector ETFs - November Returns

SPDR S&P 500 Sector ETFs, November 2022 returns. (Source: Yahoo Finance)

Fed chair Jerome Powell stole the show Wednesday, hinting the Fed will slow down its blistering pace of rate hikes in its next meeting in a few weeks.

That was all it took for the Nasdaq and the S&P 500 to post their second-best returns of the month, with the latter closing over a key technical level — its 200-day moving average — for the first time since April.

The Nasdaq — which has lagged the Dow recently by the widest margin since the dot-com bubble — played a game of “catch-up” Wednesday, as the downtrodden megacap sectors of Tech (XLK), Communication Services (XLC), and Consumer Discretionary (XLY) finally found some love.

Also key to any continuation of this recent trade is the dollar, which just wrapped up its weakest month since 2010.

In short: higher interest rates in the U.S. — and the Fed’s promise to hold them high — have been drawing in foreign investors, bidding up the dollar. A strong dollar tightens financial conditions, which generally weighs on risk markets and commodities.

At least, this was the case into late September when the dollar peaked.

But the dollar eased off in October and sold off big in November, along with rates, a slide that catalyzed rallies in risk assets.

Currently, the dollar index is sitting on top of its 200-day moving average, just like the S&P 500. In contrast to the S&P 500, however, which has been facing resistance from a declining 200-day, the dollar is touching support on a moving average trending higher.

If the greenback were to fall through this key level, it would all but guarantee a nice end-of-year rally in the stock market, a potential boon to institutional investors that often seek to hold winners at year-end.

Should the dollar rebound from this key support level, the stock market could face another headwind.

But given how markets have traded this year, it seems the dollar — not stocks — will be making the call on the market’s near-term direction.

Meanwhile, year-ahead forecasts from Wall Street banks rolling out this week show consensus expectations are for more softness in the stock market.

Though as we saw Wednesday, even those beaten-down megacaps and high growth names can show flashes of life as well.

What to Watch Today

Economy

  • 7:30 a.m. ET: Challenger Job Cuts, year-over-year, November (48.3{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} during prior month)

  • 8:30 a.m. ET: Personal Income, October (0.4{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} expected, 0.4{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} during prior month)

  • 8:30 a.m. ET: Personal Spending, October (0.8{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} expected, 0.8{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} during prior month)

  • 8:30 a.m. ET: PCE Deflator, month-over-month, October (0.5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} expected, 0.3{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} during prior month)

  • 8:30 a.m. ET: PCE Deflator, year-over-year, October (6.0{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} expected, 6.2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} during prior month)

  • 8:30 a.m. ET: PCE Core Deflator, month-over-month, October (0.3{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} expected, 0.5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} during prior month)

  • 8:30 a.m. ET: PCE Core Deflator, year-over-year, October (5.0{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} expected, 5.1{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} during prior month)

  • 8:30 a.m. ET: Initial Jobless Claims, week ended Nov. 26 (235,000 during prior week)

  • 8:30 a.m. ET: Continuing Claims, week ended Nov. 19 (1.5701 million during prior week)

  • 9:45 a.m. ET: S&P Global U.S. Manufacturing PMI, November final (47.6 expected, 50.2 during prior month)

  • 10:00 a.m. ET: Construction Spending, month-over-month, October (-0.2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} expected, -0.2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} during prior month)

  • 10:00 a.m. ET: ISM Manufacturing, November (49.7 expected, 50.2 during prior month)

  • 10:00 a.m. ET: ISM Prices Paid, November (46.7 during prior month)

  • 10:00 a.m. ET: ISM New Orders, September (48.5 during prior month)

  • 10:00 a.m. ET: ISM Employment, November (50.0 during prior month)

  • WARDS Total Vehicle Sales, November (14.60 million expected, 14.90 prior month)

Earnings

  • Ambarella (AMBA), American Outdoor Brands (AOUT), Big Lots (BIG), ChargePoint (CHPT), Designer Brands (DBI), Dollar General (DG), G-III Apparel (GIII), Kroger (KR), Li Auto (LI), Manchester United (MANU), Marvell Technology (MRVL), Patterson Companies (PDCO), Toronto-Dominion Bank (TD), Ulta Beauty (ULTA), Veeva Systems (VEEV), Weber (WEBR), Zscaler (ZS)

—

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‘The bull thesis is the long-term crypto adoption,’ analyst says

‘The bull thesis is the long-term crypto adoption,’ analyst says

Cryptocurrency investing platform Coinbase (COIN) proceeds to have a “bull thesis” even amid a crypto current market provide-off, in accordance to Owen Lau, Oppenheimer government director and senior analyst.

“The bull thesis is the very long-expression crypto adoption,” Lau said on Yahoo Finance Live this 7 days (video earlier mentioned). “[That’s] variety 1 factor the sector has not offered Coinbase credit, it can be on the crypto adoption for a longer time term.”

According to FactSet, shares of crypto-concentrated corporations are 60{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} off their highs so far this calendar year, as Coinbase is down 40{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} 12 months to day.

Still— Lau is bullish on the inventory, calling the electronic trading platform “one of the most disruptive firms.”

“If you glimpse at a for a longer time horizon, like 3, 5, 10 many years from that standpoint, if you inquire me, do I think additional or considerably less people today with have electronic assets or use digital belongings? I would say it would be far more,” he said.

Info from CoinMarketCap demonstrates that the whole crypto sector has fallen 19{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} this calendar year, while bitcoin (BTC) is also down 11{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} signaling some traders to come to be bearish on the inventory. Lau pinpointed two factors in certain for this sentiment.

“Very first of all, the bitcoin price tag has not been beneficial to the stock,” he stated. “There is certainly a substantial correlation. I think based mostly on our investigation, there is certainly even now an 80-90{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} correlation in between the bitcoin price tag and also the Coinbase cost.”

Secondly, according to Lau “several men and women converse about the rate compression,” which he stated is “one of the most chat about like race to the bottom bear thesis against common exchanges, e-brokers and also now Coinbase.”

Monitors display Coinbase signage during the company's initial public offering (IPO) at the Nasdaq market site April 14, 2021 in New York City. (Photo by Robert Nickelsberg/Getty Images)

Screens display screen Coinbase signage during the company’s first public providing (IPO) at the Nasdaq market internet site April 14, 2021 in New York Town. (Picture by Robert Nickelsberg/Getty Visuals)

Past calendar year, Coinbase President and COO Emilie Choi stated the enterprise was gearing in the direction of a buying and selling payment compression as a way to diversify from trading costs and progressively rely on profits.

Investing charges symbolize the bulk of the exchange’s profits, but the significant value volatility that is inherent to most cryptocurrencies would make this kind of costs an unstable resource of the money.

On leading of that, Lau alluded to numerous other bearish variables, together with “the lower investing quantity, and then Coinbase has not been speedy sufficient to launch on numerous initiatives like the derivatives platform and also NFT.”

In a blog site submit on Wednesday, Coinbase mentioned it has its non-fungible token (NFT) market up and functioning in beta mode. The moment it launches totally, buyers will be able to get or provide NFTs with cryptocurrency and other types of payment.

“I consider the bear thesis and the sale of it is overblown,” Lau said. “We consider more time term, this is a fantastic entry point for traders.”

Dani Romero is a reporter for Yahoo Finance. Observe her on Twitter: @daniromerotv

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