Market Commentaries

  • Last Week’s Markets in Review: The Status of the Almighty Dollar


    Equity markets moved slightly higher last week as investors were tasked with sorting out news surrounding COVID-19, corporate earnings, and the potential for additional fiscal stimulus. In the U.S., the S&P 500 Index rose to a level of 3,484, representing a gain of 0.21%, while the Russell Midcap Index moved 0.07% higher last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, lagged and fell 0.22% over the week. International equities were mixed across geographies as developed and emerging markets returned -1.45% and 0.15%, respectively. Finally, the yield on the 10-year U.S. Treasury fell slightly, finishing the week at 0.76%, down 3 basis points from the week prior.

    The U.S. Dollar (USD) has been in focus for much of the year. The greenback has been on a steady ascent since 2018, even flirting with decade highs while global markets were in turmoil earlier this year. As civilians stocked up on toilet paper, companies, institutions, investors, and governments stocked up on the world’s reserve currency. Since then, the USD has fallen considerably and is a hot topic as we head into the presidential and congressional elections on November 3, the results of which remain uncertain at this time. For these purposes, we’re referring to the U.S. Dollar Index, which measures its value compared to a basket of currencies, not a particular currency pair that will have its own unique drivers.

    U.S. Dollar Index (Year-to-Date)

    Source: Bloomberg, as of October 16, 2020. Past performance is not an indication of future results.

    We took notice of some key drivers of the USD decline since March. To start, the unwinding from the initial “flight to safety” along with policy decisions in the wake of the global pandemic, of which the United States has been one of the hardest-hit nations, weakened the dollar. The initial decline coincided with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provided record levels of aid to citizens, businesses, and capital markets. The bill was signed into law by President Trump on March 27, 2020. Additionally, the Federal Reserve and the Federal Government’s support and stimulus implementations would dilute the USD’s value while reducing interest rates. The combined effect no longer gave the U.S. the same relative risk-adjusted advantage we once had on the global stage when compared to other developed nations.

    Moving forward, our overall outlook for the USD is relatively neutral, tilting towards a weaker dollar. Although many factors impact currency values, overall, we see the uncertainties around vaccine developments and the outcome of upcoming U.S. elections adding downside pressure over the short-medium term. How much more downside over the shorter term will depend on how quickly Congress can pass an additional stimulus bill. Each passing day looks more and more likely as though a new stimulus bill will not be passed until after Election Day. If Congress doesn’t pass additional stimulus before the election, we will likely see the dollar trade sideways through Election Day. After that, timing and magnitude will be critical factors. We expect some form of fiscal stimulus to pass one way or the other ultimately. A potential Democratic sweep could lend way to a unified government passing an even larger stimulus package than is currently being negotiated, thus weakening the dollar. A resulting split government, or even a contested election, would likely result in a smaller and further delayed stimulus package resulting in the USD likely trading sideways or perhaps weakening slightly.

    It’s important to understand the implications of a strong or weak USD on investor portfolio strategies. As a result, we encourage investors to stay disciplined and work with experienced financial professionals to help manage their portfolios through various market cycles within an appropriately diversified framework that is consistent with their objectives, time-frame, and risk tolerance.

    We recognize that these are very troubling and uncertain times, and we want you to know that we are always here for you to help in any way that we can. Please stay safe and stay well.

    Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 10/16/20. Rates and Economic Calendar Data from Bloomberg as of 10/16/20. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index, U.S. Large Cap defined by the S&P 500. Sector performance is measured using the GICS methodology.

    Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against loss.

    Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.

    Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.

    Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than the original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.


    MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.

    MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.

    Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.

    ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.

    ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.

    Investors cannot directly purchase any index.

    LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.

    The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.

    The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.

    DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.

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