Is this bullish market behavior really sustainable? It’s incredible how often I’m asked this question. I immediately think about how people are misled into thinking of investing as a hobby…
Perhaps what best answers this questions is that last week we had broad market participation and strength. All industry groups and 8/10 sectors hit new highs. We continue to see money moving out of bonds and into riskier sectors, like retail, and asset classes, like stocks. This means that the bond market, which leads stocks in the financial cycle, clearly believes the US economy is strengthening. US interest rates (short, intermediate, and even long-term), have reached their highest levels since 2014. This means that we are bullish on the financial sector, namely small and mid-cap banks, which will benefit even more so from less regulation and the widening spread.
So, what about the US Dollar? The Dollar and US Treasury Yields typically move together. However, fears of a shutdown of the US government pushed the Dollar lower last week. Additionally, although the European Union has been aggressive in its monetary policy, substantial growth in global trade exports (a record 2017) further intensifies the Dollar’s weakening trend.
