STOCKS REBOUND ON DOVISH FED SPEECH -- RISKIER STOCKS LEAD WHILE SAFE HAVENS LAG -- DOW REGAINS 200-DAY LINE -- LOWER BOND YIELDS WEAKEN THE DOLLAR WHICH BOOSTS GOLD AND EMERGING MARKETS
DOW REGAINS 200-DAY AVERAGE ... U.S. stock indexes reacted positively to today's noon speech by Fed chief Jerome Powell that was perceived to be more dovish than comments made at the start of October. Stocks all over the world are rallying as a result. Chart 1 shows the Dow Industrials climbing enough to regain their 200-day average. Chart 2 shows the S&P 500 climbing as well, but still below that long-term support line. While Chart 3 shows the Nasdaq Composite also having a strong day. From a technical standpoint, today's stock gains are building on the recent retest of their late October low while in a short-term oversold condition. And it increases the chances for the much anticipated yearend rally. Trading among various stock sectors also shows more optimism. Today's two top gainers are consumer discretionary stocks and technology, while the three weakest are staples, utilities, and REITs. A more dovish sounding Fed also caused bond yields to weaken. That's especially true of the two-year Treasury yield which fell the most. That in turn weakened the dollar and helped boost some commodity prices like gold. A weaker dollar also helped boost foreign stocks, including emerging markets. It remains to be seen if investors read too much into Mr. Powell's comments today. In addition, there are still significant overhead resistance barriers that need to be tested to determine the staying power of today's rebound. Trade talks between the U.S. and China this weekend should also have an impact on stock market direction.
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Chart 1
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Chart 2
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Chart 3
OTHER INTERMARKET INFLUENCES ... Chart 4 shows the 10-Year Treasury yield down nearly one basis point today to 3.05% which puts it near the lowest level in two months. The two year yield, which is more sensitive to Fed moves, is down more. That in turn is weakening the dollar. Chart 5 shows the U.S. Dollar Index Fund (UUP) pulling back sharply today. The UUP had come close to a new eigteen-month high prior to today's pullback. That gave a boost to gold and foreign stocks, especially emerging markets. Chart 6 shows Emerging Markets IShares (EEM) climbing back above their 50-day moving average. A weaker dollar relieves a lot of pressure on emerging markets because it lowers the cost of paying their dollar-denominated debt.
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Chart 4
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Chart 5
