A Weaker U.S. Dollar May Be in Store | Daily Market Update

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Thursday, May 6, 2021

Top Story

Additional U.S. dollar weakness may be in store

  • The twin deficits (trade and budget) and related excess market liquidity point to further U.S. dollar weakness.
  • Perhaps surprisingly, relative interest rates also point to a weaker dollar, based on Ned Davis Research analysis.
  • A weak dollar could eventually be inflationary, something to watch amid other building inflationary pressures.
  • A weak dollar could help non-U.S. markets close the performance gap with the United States, though we continue to favor the U.S.
  • Globally, the materials sector has historically exhibited the most negative correlation to the dollar and remains a favorite sector of LPL Research.

Daily Insights

U.S. stocks open little changed as jobless claims fall to pandemic low

  • European markets are fluctuating between gains and losses in midday trading with the United Kingdom within reach of a new all-time high.
  • Asian markets finished mixed overnight as Japan returned from its long holiday to gain nearly 2%.

Jobless claims continue to slide

  • S. claims for unemployment insurance fell to a pandemic low of 498,000, according to the Department of Labor, below Bloomberg consensus forecasts calling for 538,000.
  • Claims from the prior week were revised higher by 37,000, breaking what was a five-week streak of declining claims.
  • The market will turn its focus to Friday’s nonfarm payrolls report, where the Bloomberg economist survey calls for a gain of 1 million jobs in April.

Race to COVID-19 immunity as global cases surge

  • Even as an unprecedented vaccine rollout is underway around the world, the daily number of reported new COVID-19 cases recently passed 1.25 million for the first time.
  • The global number of daily cases has escalated rapidly, from a trough of under 500,000 in mid-February, driven by a devastating second wave of infections in India.
  • We take a look at global vaccine progress and the race toward herd immunity in our latest blog on LPL Research blog, available after 12p.m. ET today.

Technical update

Energy led the S&P 500 Index to a slight gain Wednesday, as growth stocks fell again. The Russell 1000 Growth Index has now fallen in six of the past seven days, losing 3.3% over that time period. While the Russell 1000 Growth to Value ratio has not broken below its March 2021 lows yet, the correlated style box ratios for the small-cap Russell 2000 indexes have broken down to the lowest level since March 2020, suggesting large caps may follow.

LPL Research in the Media

LPL Financial Chief Market Strategist Ryan Detrick joined Charles Payne on Fox Business recently to discuss current market trends. You can watch the full interview here.

Time To Sell In May?

LPL Research notes some possible reasons for a pause in the rally and why any potential pullbacks won’t last very long. Learn more in this week’s Weekly Market Commentary on the Resource Center, Marketing on Demand, and Broadridge.

Sell in May?

On the LPL Market Signals podcast, Chief Market Strategist Ryan Detrick and Equity Strategist Jeff Buchbinder punch holes in the “Sell in May” axiom and reflect on how the economic data continues to come in extremely strong as the economy opens up faster than expected.

 

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