The dollar breaks down and it could help stocks
It was a positive week on Wall Street last week, albeit a bit schizophrenic; Monday was up big. Tuesday, Wednesday, and Thursday saw sharp down days, and then Friday’s rally recovered those losses.
For the second week in a row, all of the TSP funds closed in positive territory. The C-fund was up 2.07%, the S-fund added 2.52%, and the I-fund led the way with a gain of 2.78%. Bonds (F-fund) picked up 0.38% and the G-fund added 0.04%.
For the month the gains continued as the C-fund is now up 9.60% in September, the S-fund has jumped 10.68%, and the I-fund has gained 9.87%. Bonds and the F-fund are down 0.23% this month, and the G-fund is up 0.14%.
The S&P 500 broke out of its longer-term descending trading channel (purple lines) earlier this month, broke above its summer trading range between 1040 and 1130 (red dashed lines), and may have started a new long-term ascending trading channel (solid red lines). But you can see that it is trading at the top of that new trading channel so there is room for it to pull back. Last week’s action looks very similar to the late July / early August peak (circled).
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Of course it could just ride up along the resistance line without pulling back, and the answer to whether that happens or not could come from the U.S. dollar.
The dollar broke down last week and that changes the outlook on the dollar to much more bearish. When a currency falls, the value of whatever is being bought and sold in that currency appears to go up in value because it takes more of that weaker currency to purchase the goods or services. In this case that currency is the dollar.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
For instance, if the supply and demand of a commodity like oil stays constant, but the value of the dollar goes down, it now takes more dollars to buy the same amount of oil. So, stock values may not be doing any better or worse, but if the dollar declines, the price of the stock goes higher (in dollars). This is compounded in our TSP’s I-fund as those international stocks are directly affected by the movement in the dollar when compared to the currencies of their local companies overseas.
I am not sure what is going on with the economy, but if U.S. companies are going to maintain the status quo, the price of their stocks could rise just based on a declining dollar. But that doesn’t mean stocks can’t go lower. If the economy does not recover, earnings will suffer and the price of stocks will go down despite weakness in the dollar.
Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.
Tom Crowley
www.tsptalk.com
Weekly Wrap-Ups Archive
It was a positive week on Wall Street last week, albeit a bit schizophrenic; Monday was up big. Tuesday, Wednesday, and Thursday saw sharp down days, and then Friday’s rally recovered those losses.
For the second week in a row, all of the TSP funds closed in positive territory. The C-fund was up 2.07%, the S-fund added 2.52%, and the I-fund led the way with a gain of 2.78%. Bonds (F-fund) picked up 0.38% and the G-fund added 0.04%.
For the month the gains continued as the C-fund is now up 9.60% in September, the S-fund has jumped 10.68%, and the I-fund has gained 9.87%. Bonds and the F-fund are down 0.23% this month, and the G-fund is up 0.14%.
The S&P 500 broke out of its longer-term descending trading channel (purple lines) earlier this month, broke above its summer trading range between 1040 and 1130 (red dashed lines), and may have started a new long-term ascending trading channel (solid red lines). But you can see that it is trading at the top of that new trading channel so there is room for it to pull back. Last week’s action looks very similar to the late July / early August peak (circled).
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Of course it could just ride up along the resistance line without pulling back, and the answer to whether that happens or not could come from the U.S. dollar.
The dollar broke down last week and that changes the outlook on the dollar to much more bearish. When a currency falls, the value of whatever is being bought and sold in that currency appears to go up in value because it takes more of that weaker currency to purchase the goods or services. In this case that currency is the dollar.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
For instance, if the supply and demand of a commodity like oil stays constant, but the value of the dollar goes down, it now takes more dollars to buy the same amount of oil. So, stock values may not be doing any better or worse, but if the dollar declines, the price of the stock goes higher (in dollars). This is compounded in our TSP’s I-fund as those international stocks are directly affected by the movement in the dollar when compared to the currencies of their local companies overseas.
I am not sure what is going on with the economy, but if U.S. companies are going to maintain the status quo, the price of their stocks could rise just based on a declining dollar. But that doesn’t mean stocks can’t go lower. If the economy does not recover, earnings will suffer and the price of stocks will go down despite weakness in the dollar.
Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.
Tom Crowley
www.tsptalk.com
Weekly Wrap-Ups Archive
