As the U.S. market and commodities futures previewed this morning, the stock market is having a rough start to the week with the SP500 down -2.70% and the Nasdaq down -2.95%, currently. The internals of the market are noteworthy in that there is a bifurcation of sector performance. The XLU (utilities), XLP (consumer staples), and XLV (healthcare) are outperforming. On the other hand, XLB (materials), XLE (energy), and XLF (financials) are vastly underperforming. Performances for all nine sectors of the S&P is outlined in the chart below, but the average performance for the top 3 sectors currently is -0.72% versus the average performance of the bottom 3 sectors which is -4.44%, with the delta between the two groups at 372 basis points.
Many media outlets will point to the World Bank cutting global growth estimates last night and increased geo-political pressures with Iran and North Korea as the key culprit behind today's equity market declines.
In reality, the US Dollar continues to be the primary driver of asset class returns.
The U.S. Dollar Index is currently +0.58% intraday and as we've been hammering on for most this year, dollar up equals stocks and commodities down. While declining growth estimates by the World Bank may have some sticker shock, most investors realize that those projections are more lagging than leading. As it relates to foreign policy concerns, if they were the key driver to the market today, one would rationally expect either gold or oil to be up due to a flight to safety, but both are down -1.6% and -3.9%, respectively.
While Mr. Market seems to be acting irrationally today, one needs to look no further than the quote on the US Dollar Index to explain today's price action. If you were locked in a dark room and could only have one quote to trade this market, it would continue to be US Dollar Index.
Daryl G. Jones
Managing Director
