What the Market Wants: Market in Strange Dance with the Dollar

Since the unemployment release of 10.2% on November 6, virtually all economic releases have been modestly positive and the late reporting companies have had strong results (including revenues) and strong guidance.  So why has the market been going up and down on a daily basis over the past week?

The short answer is the dollar.  Over the past several weeks, the market has seemed inversely tied to the value of the dollar. The dollar goes down, the market goes up; the dollar goes up, the market goes down.  Generally speaking, the dollar has gone down, and the market has gone up.

In fact, today as I write, we have reached a new high for the year for the S&P500, the Nasdaq, the Dow, and just about anything you want to name.  And sure enough, the dollar is down once again today.

Frankly, this inverse relationship between the dollar and the market is not that surprising since a weak dollar means more exports and fewer imports for the U.S. and higher material prices. That also explains the strength of large-caps over small-caps, since as general rule large-cap stocks have much more revenues from exports than small-caps.  Clearly, most major natural resource companies are also large caps.  At the November 7th G-20 meeting, the leaders had pledged to continue to support the recovery until it is assured, and that has led to a weaker dollar.

Sectors & Cap/Styles. Last week was not a particularly exciting week, but once again, all cap/styles were up led again by Large-cap Growth (+2.5%) with Small-cap Growth (+0.8) at the bottom. Thanks to the weak dollar, Materials led the sectors, along with Technology, while sectors that normally are strong during recessionary pressures were at the bottom though still positive (think: Healthcare, Utilities and at times, Energy). As long as the dollar remains weak, this sector ranking is likely to continue.

Click here to see the Market Stats.

Our SectorCast forward-looking rankings are still biased in favor of Telecom, Healthcare and Consumer Staples, which means that our model is still “worried” about the recovery.  That is understandable in light of the high unemployment and continued financial concerns.

I recommend continued bargain-hunting (which is getting harder) in the large-cap and mid-cap segments and among the leading sectors in our forward rankings.

4 Stocks for This Market.

Excuse me for bragging on MyStockFinder, but the four stocks I presented to you last week did very well.  I hope you found an opportunity to get in.

This week, I ran our proprietary MyStockFinder stock search tool (http://MyStockFinder.com) using the Undervalued Large Cap Growth pre-set search. I'm staying somewhat conservative this week after such a big market move so far this month. However, I also included mid-caps, and I slightly up-weighted Technicals, Insider Buying, and Analyst Revisions.  Here are some of the particularly intriguing stock ideas from SectorCast's strongest forward-looking sectors:

America Movil (NYSE: AMX) - Telecom
American Medical Systems (Nasdaq: AMMD) - Healthcare
Universal Corp (NYSE: UVV) - Consumer Staples
Petrobras (NYSE: PBR) - Energy

Until next week,

David Brown
Chief Market Strategist

Leaders in Investment Research
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Full disclosure:  Neither Sabrient, David Brown nor Scott Martindale holds any of the stocks mentioned in this week’s “4 Stocks to Consider.”


Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

What the Market Wants
david / Tag: AMMD, AMX, consumer staples, healthcare, materials, PBR, sector, technology, telecom, UVV /