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Daily Blog

Thursday, February 20, 2020

The trade-weighted U.S. dollar (DXY) is trading near 1.00, a three-year high, and is pressuring U.S. companies’ overseas profits. Domestic U.S. operations remain strong due to pro-growth economic policies and are somewhat insulated from international problems. That core of domestic economic strength is the reason why the U.S. dollar is a beacon to the world in this time of duress.

Even in good times Europe struggles, as shown by the negative to flat 4Q19 GDP growth in France, Germany and Italy. Japan is far worse; its 4Q19 GDP plummeted 6.3%. Besides the U.S. and China, these are among the largest economies in the world; such lackluster performance has spurred an impetus to flee their currencies for the perceived “safe harbor” of America’s shores.

But a rising U.S. dollar adds insult to injury for U.S. corporations with global operations — it slows demand and exacts currency-exchange losses on repatriated profits. The elephant in the room, though, is China, as it struggles with its own problems. The reflex response of struggling countries is to devalue their currencies — a race to the bottom and a race to the U.S. dollar. The result is this liquidity-driven global rally. I prefer rallies based on improving fundamentals — rising sales and growing corporate earnings.

Weekly Commentary & Statistics

Monday, February 24, 2020

The major U.S. stock indexes ended down for the week, as flash PMIs telegraphed early warnings that the coronavirus outbreak was hindering the global economy.

Quarterly Commentary & Outlook

December 2019

While warnings of recession, bear markets and trade wars going into and throughout 2019 were rampant, calendar year equity returns are shaping up to be among the best since 2009. What did the market miss, and what insight might it give us for our 2020 forecast? Well, contrary to popular belief, when the market is coming to an inflection point, it is fundamentals that show the way, not price action, which in fact often shows the wrong way.

  • The New Year is approaching, riding on the heels of raging global stock and bond market rallies.
  • Last year strong fundamentals ultimately led to the best broad-based market in a decade.
  • 2020 is likely to begin with faltering fundamentals, including the first negative earnings growth in 12 quarters along with four consecutive months of manufacturing contraction.
  • There are divergent outlooks among the “Big 3” (Europe, China and the United States); U.S. is stable, but Europe and China face serious challenges.
  • U.S. Manufacturing is contracting, while the U.S. Consumer remains the game changer, a likely tailwind in 2020. Expect calm followed by storms, and remember the sequel is never as good as the original.

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