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US Equities and USD Gains On Counterparts' Losses Will Have Limits

US Equities and USD Gains On Counterparts' Losses Will Have Limits

2016-11-22 03:51:00
John Kicklighter, Chief Strategist
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Talking Points:

  • US stocks extended their run with S&P 500, Dow and Russell 2000 hitting concurrent records for first time since 1999
  • Divergences in performance for speculative assets and regions points to a vampiric US strength at counterparts' loss
  • The Dollar meanwhile capped its remarkable rally at a 10-day gain as a 100% probability of December hike priced in

See what live coverage is scheduled to cover key event risk for the FX and capital markets on the DailyFX Webinar Calendar.

The new week has started off on a strong footing...at least for US equities. Outside of this particular, regional asset class; performance was more varied and conviction certainly lacking for the kind of speculative windfall many presume we are enjoying. There is little doubt of the highs that many of the major American indexes achieved to start the new week. A factoid that caught many traders' interest was that the S&P 500, Dow Composite and Russell 2000 all hit record highs simultaneously for the first time since 1999. Of course, making such a reference comes with natural allusions to a boom and bust period - the Dot-com bubble. We don't have to dig for such statistics, however, to strain confidence in speculative US or any other speculative assets.

For the US markets, strength beyond the relative performance of global counterparts still finds tail winds from the surprise outcome of the US presidential election two weeks ago. Expectations of fiscal stimulus is one charge that looks like a domestic advantage. Yet, there is further expectation of US out-performance on the basis of weakening for the country's global trade partners given the threats being made to renegotiate important and long-standing trade agreements. This is strength at the detriment of neighbors, which has a limited shelf life as would ultimately undermine global growth and investment.

The relative appeal of the Dollar seems to have already hit a level of saturation in absorbing the heat from counterparts. Its remarkable rally was capped at a 10-day consecutive advance as Monday closed lower. It is a tentative turn as Fed rate forecasts (now at 100 percent probability of a December 14th hike) are still buoyant - but not reaching further out the curve, as there is little further hawkish premium out to the February 1st meeting and beyond. Whether trading for follow through or reversal, expectations should be limited to the view for liquidity with this week's Thanksgiving holiday in the US. We take stock of the market's bearings and opportunity in divergence in today's Trading Video.

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