Disarray In DC Is Dictating The Day For Stocks

by: Markos Kaminis


The U.S. dollar immediately depreciated on news that Congress would be delaying a replacement for Obamacare.

U.S. stocks declined in kind, as the inefficiency of the government to get the new Administration's pro-economic and market-serving initiatives enacted extends beyond just healthcare.

But the move today seems overdone to me, given my expectations for economic firming near-term.

Today's stock market is getting its guidance from disarray in Washington D.C. The inability of Congress to get America's health care in order had the U.S. Dollar Index down by 0.6% in AM trade. Stocks were down on the health care disappointment earlier as well, but equities have recovered significant ground. I think there's a good reason for that.

Security 07-18-17 11:52 AM
SPDR S&P 500 (NYSE: SPY) -0.1%
SPDR Dow Jones (NYSE: DIA) -0.4%
PowerShares QQQ (NASDAQ: QQQ) -0.4%
iShares Russell 2000 (NYSE: IWM) -0.4%
Vanguard Total Stock Market (NYSE: VTI) -0.1%
iPath S&P 500 VIX ST Futures (NYSE: VXX) +0.1%
PIMCO Active Bond (NYSE: BOND) +0.1%
PowerShares DB US Dollar Bull (NYSE: UUP) -0.6%
iPath S&P GSCI Crude Oil (NYSE: OIL) +0.9%
SPDR Gold Trust (NYSE: GLD) +0.7%

The U.S. Dollar Index spot rate was down 0.6% this morning. The dollar started lower last evening just after the news that a health care replacement program probably cannot get passed near-term. Thus, it seems the catalyst for today's dollar dive and stock downshift is clear. Risk assets, aka stocks, were lower to start the day too on our government's inefficiency. Oil, gold and other commodities were higher on the dollar decline, which is to be expected.

This is not the first failure either, with tax reform still just an idea. The Trump-trade, so to speak, was fueled by hope for these initiatives to pass.

But the move in the dollar seems overdone to me, benefiting probably from algorithmic and other momentum generated trading (on greed-driven speculation). The U.S. dollar should in the near future benefit from U.S. economic firming, holding all other factors for it constant. Yesterday's GDP data from China should have helped the dollar today too, and should help moving forward. As the U.S. economic data improves post the Q1 slowdown, the dollar benefits from our improved economic situation and also from expectations for Federal Reserve monetary tightening.

I found it ironic that the market's read of the Fed last week was that another rate hike is less likely this year. I think we might even have one in September and two more this year (so 3 or 4 rate hikes for 2017). Still, for as long as my opinion is an outlier here, stocks should benefit from easier money expectations - probably for another month or a month and a half, and probably on a sector rotation into cyclicals. Stay tuned to my column here at Seeking Alpha for timely updates on this, and keep your eye on economic data for confirmation of it.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.