There's a major driver of uncertainty in this market... And it has to do with America's global economic prowess.
The Truth About America's 'Reserve Currency' Status
By Pete Carmasino, chief market strategist, Chaikin Analytics
There's a major driver of uncertainty in this market...
And it has to do with America's global economic prowess.
I'm talking about the fear that the U.S. dollar will lose its global "reserve currency" status.
Folks, let me be clear from the jump...
That isn't going to happen.
Now, cynics will point to an anomaly in the markets right now. Both the prices of U.S. Treasury bonds and the value of the U.S. dollar have fallen together in recent months.
That doesn't usually happen. Typically, one rises while the other falls. That's because of the relationship between interest rates and the yield curve.
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Wall Street Is Spooked About Falling Demand for U.S. Treasurys
First, think about it like this...
You likely have a checking account.
Money comes in from your job. And money goes out for groceries, gas, and other stuff.
If you spend more money than you bring in, you're technically running a "deficit." How do you pay for the difference?
You borrow. You use your credit card or take out a loan that you'll pay for down the road.
The U.S. does the same thing...
For a long time, the U.S. has bought a lot more stuff from other countries (imports) than it has sold to them (exports). We make up the difference with "IOUs" – U.S. Treasury bonds.
This strategy worked fine for decades. Countries like China would sell us phones and TVs, get a big pile of U.S. dollars, and then use the dollars to buy U.S. Treasury bonds.
For China, it's a bonus that everyone considers U.S. Treasury bonds the safest in the world. But beyond that, the Chinese government follows this strategy to protect its own currency.
China gets the best of both worlds. With this approach, it can own the world's best bonds and not convert U.S. dollars to yuan.
In the meantime, the U.S. funds its operations on bond sales. So over the long run, it has been a good relationship.
The overall system of inflows and outflows is tracked in the "balance of payments."
Ultimately, everything coming in and going out just needs to balance. And for a long time, foreign countries willingly helped us support our spending deficit.
But that's now changing...
Put simply, the trust that held this system together is being tested.
President Donald Trump and his administration want more balance today. By that, I don't mean they're looking to completely erase the trade deficit. They just want to reduce it.
New White House policies could lead to the U.S. buying less from the rest of the world.
That means fewer dollars are flowing out of the U.S. to countries like China. When these countries have fewer dollars coming in, they have fewer dollars to buy U.S. Treasury bonds.
So demand is falling. And that has Wall Street spooked.
But that's not the only pressure that the bond market and the U.S. dollar are facing...
Tomorrow, I'll explain why China is selling U.S. debt and what it means for us going forward.
Good investing,
Pete Carmasino
Market View
Major Indexes and Notable Sectors
# Hld: Bullish Neutral Bearish
Dow 30
-1.78%
9
14
7
S&P 500
-1.12%
89
259
152
Nasdaq
-1.26%
24
61
16
Small Caps
-1.83%
399
1107
381
Bonds
-0.96%
Energy
+1.74%
5
12
6
— According to the Chaikin Power Bar, Small Cap stocks remain somewhat more Bullish than Large Cap stocks. Major indexes are mixed.
* * * *
Sector Tracker
Sector movement over the last 5 days
Energy
+5.62%
Health Care
+1.3%
Information Technology
+0.34%
Utilities
+0.28%
Real Estate
+0.02%
Consumer Discretionary
-0.2%
Materials
-0.46%
Consumer Staples
-0.89%
Communication
-1.09%
Industrials
-1.57%
Financial
-2.57%
* * * *
Industry Focus
Retail Services
5
44
26
Over the past 6 months, the Retail subsector (XRT) has underperformed the S&P 500 by -8.32%. Its Power Bar ratio, which measures future potential, is Very Weak, with more Bearish than Bullish stocks. It is currently ranked #17 of 21 subsectors and has moved down 1 slot over the past week.
Indicative Stocks
AEO
American Eagle Outfi
ASO
Academy Sports and O
AZO
AutoZone, Inc.
* * * *
Top Movers
Gainers
ORCL
+7.69%
CF
+6.5%
BG
+5.69%
HAL
+5.51%
APA
+5.31%
Losers
CPAY
-7.66%
CZR
-6.41%
MPWR
-6.34%
DECK
-5.78%
SHW
-5.7%
* * * *
Earnings Report
Earnings Surprises
No significant Earnings Surprises in the Russell 3000.
* * * *
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