Global macro: Stocks hit record on fundamentals

Markets on Thursday were focused more on economic reports than on Bernanke's comments to Congress.

By TheStreet Staff Jul 19, 2013 12:00PM

thestreet logoArrow Up (© Stockbyte/SuperStock)By Andrew Sachais


For all of the speculative trading surrounding Federal Reserve Chairman Ben Bernanke's statements these past few weeks, the markets on Thursday traded on fundamentals.


Unemployment numbers fell, beating expectations and proving that the labor market recovery is sustainable. Similarly, the Philadelphia Fed report for July hit its highest levels in two years. With the stronger economy, equity markets reached record highs.


The first chart below is of CurrencyShares Japanese Yen Trust (FXY) over PowerShares DB US Dollar Index Bullish (UUP).


The dollar has shown strength as investors continue to price in a September start to an end of monetary easing. Japanese elections, however, have led the yen to strengthen recently.


Japanese Prime Minister Shinzo Abe has taken a strong reflationary stance on monetary policy, which has weakened the yen and strengthened the Nikkei index.


Upper house elections take place on Sunday, which -- if Abe can pull out a victory -- would resume the reflationary stance in Japan. Until that time, the yen and Japanese assets should remain muted.


global macro fxy uup



The next chart is of United States Oil ETF (USO). Oil has similarly seen a strong rise recently as data have reinforced a move higher. Labor markets have been stronger, and expectations for inflation have been revised upward.


As equity markets hit new highs, oil has gained in lockstep. That fundamentals are driving the move is a bullish signal, considering the artificial nature of geopolitical risk. Geopolitical risk tends to be fleeting, and assets can collapse when the risk is removed from the market.


The move in oil looks slightly overextended and could pull back short term. But the outperformance of stocks in cyclical sectors and commodities is a bullish indicator for the U.S.


uso chart


The final chart is of iShares Barclays 20+ Year Treasury Bond (TLT). Long Treasury bonds have underperformed recently as markets have begun to accept an end to quantitative easing.


The downtrend remains very strong and the yield curve has continued to steepen as the long bond has sold off faster than short-term Treasuries.


Rising rates reiterate the point that the U.S. dollar will continue upward. The dollar has fallen from highs in recent weeks leading up to Bernanke's testimony this week. Stronger inflation readings and rising rates, however, will eventually push the dollar higher, as will weaker policy stances from foreign central banks.



At the time of publication the author had no position in any of the stocks mentioned.


More from



Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

125 rated 1
264 rated 2
485 rated 3
679 rated 4
640 rated 5
617 rated 6
632 rated 7
493 rated 8
276 rated 9
153 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.