Quick Take: The Dollar, Fed, Options Expiry, And Russia In Focus

The U.S. Dollar, Fed policy, options expiration, and Russia are the focal points on this third Friday in December.

Don’t look now fans, but “King Dollar” has resumed its charge higher since the election and closed Thursday at a 14-year high against a basket of 16 major currencies. The problem here is three-fold. First, a rising dollar tends to hamper economic growth in terms of exports. Second, a stronger greenback makes trillions of dollar-denominated debt around the world more expensive to pay back. And finally, a higher dollar negatively impacts the bottom lines of U.S. multinational corporations. And since a great many of the S&P 500 companies do business globally, the strength in the dollar remains something to watch.

Next up is the Fed. Although there has been plenty of analysis on this week’s FOMC meeting, the ongoing rally in the dollar could easily become a factor in future Fed policy. And while the “dot plot” suggests three rate hikes are on tap for 2017, if the dollar continues to strengthen, some analysts believe that number could fall.

Next up this morning, let’s recognize that today is a “quad witch” options expiration session, where strange things can happen. As such, don’t be surprised if we see intraday volatility. What’s new, right?

Then there is Russia. It is widely reported this morning that Russian hackers actually failed to penetrate the GOP computer network during this year’s Presidential campaign. This is in stark contrast to the successful hack of the DNC’s network, where the attack was significantly more aggressive and persistent. While this story isn’t likely to impact markets in any way, it does raise the question of data security in today’s economy.

Turning to the markets, stocks look to open slightly higher and bond yields are ever-so slightly lower at the current time with the U.S. 10-Year currently at 2.568%, which is down from yesterday’s high of 2.621%. However, pullbacks in yields have been short-lived and shallow since the election, so you may want to continue to watch the action in the 10-year.

Finally, rest assured that the media’s obsession with the Dow 20,000 level will increase should stocks strengthen intraday. Stay tuned and keep those celebratory hats ready!

Current Market Drivers

We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).

1. The State of the “Trump Trade”

2. The State of Global Central Bank Policies

3. The State of U.S. Dollar

4. The State of Bond Yields