Whether Falling Dollar Is Good News or Bad

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Enthusiasm for a weaker dollar turned to something less for the market today as the S&P 500 and Nasdaq finished in the red.
The S&P 500 dipped 0.1%, to 2837.54, while the Nasdaq Composite fell 0.6%, to 7415.06. The Dow Jones Industrial Average rose 41.31 points, or 0.2%, to 26,252.12. The U.S. Dollar Index fell 1%, to $89.21, its lowest in three years.

The dollar’s drop was spurred by comments made in Davos by U.S. Treasury Secretary Steven Mnuchin, who argued that the weaker dollar is good for U.S. trade and that its short-term value isn’t “a concern of ours at all,” though he did say that in the long term a strong dollar was a reflection of a strong U.S. economy. Deutsche Bank’s Alan Ruskin notes that “context matters,” and there’s a lot of context here.

Mnuchin’s comments came just after the U.S. initiated tariffs on some products entering the U.S., making it “tough not to conclude that the USD is being seen as part of trade policy,” Ruskin says. Mnuchin also made the comments at Davos, a place almost guaranteed to deliver “maximum impact,” Ruskin continues. Finally, the dollar had been very weak recently, and the “Treasury secretary should have been alert to this vulnerability—if he cared,” Ruskin says.

Maybe he doesn’t, but perhaps we all should care a little bit more about the weak dollar. With economic growth in the U.S. picking up and the 10-year Treasury yield rising, the dollar should be getting stronger, says the Leuthold Group’s Jim Paulsen. The fact that it’s falling suggests that it may “reflect growing inflation expectations,” and that won’t be good news for financial markets. “No, the U.S. dollar is not going down because of rising interest rates,” Paulsen explains. “And, no, a weak U.S. dollar is probably not good for the financial markets.
On an adjusted basis, excluding items such as a 90-cent-a-share charge due to the new tax law, the company earned $1.60 a share in the fourth quarter, beating the consensus by 4 cents, according to FactSet. Sales climbed by 7%, to $15.7 billion, though United Technologies did experience margin pressure in several of its units, including Pratt & Whitney and Otis. Shares finished off 0.3% at $135.68.

One piece of encouraging news did come from Pratt & Whitney: The unit is making progress rolling out a new commercial jet engine called the geared turbofan. The company told analysts that it delivered 374 of the engines last year, near the range of what had been expected. And CEO Greg Hayes promised that the company “will almost double that again this year.”

He needs to deliver on that, and the sooner Pratt ramps up its production, the better, given the startup costs and learning curve associated with building the supply chain and manufacturing capability.

The company told analysts it expects to notch adjusted earnings of $6.85 to $7.10 this year. If the geared turbofan’s production pace continues to increase, it will make that target a lot easier to hit. — Lawrence C. Strauss
His email alert today, citing his Jan. 8 publication, says there is “great danger of harmful events, earthquakes, weather, geopolitics, war, terrorist activity, markets affected.”

Crawford, whom Barron’s dubbed “the best known astrologer on Wall Street” back in 1988—admittedly a small club—says that a particular current alignment of Mars between Saturn and Uranus is a decidedly negative sign for the 25th, plus or minus three days.

In particular, his astrological charts and research suggest that the current planetary positioning means: “The sinking of the market. Decrease of work. Throttling, suppression. Terror. Rawness, crudeness. To wreck.”

His newsletter is 40 years old with about 1,200 subscribers; he has a following among money managers and market technicians. We’ll add by way of background that this reporter interviewed Crawford in early January 1994, when he predicted the Dow Jones Industrial Average would fall between 700 and 1,200 points by late March 1994. In the event, it fell over 350 points, or 10%, by April 4.

He points out that there’s already been a 7.9 magnitude earthquake in Alaska Tuesday and the Mount Mayan volcano erupted in the Philippines Monday and Tuesday. “And with President Trump in Davos, who knows what could happen?” Crawford quips.

If something terribly bad happens to the stock market Thursday, don’t say Barron’s didn’t warn you. —Vito J. Racanellli
Analysts are particularly pleased. Credit Suisse’s Susan Roth Katzke and her team write that it’s consistent with a bank positioning itself for above-average, sustainable earnings growth, driven by strong revenues. And wouldn’t you know it, Katzke reiterated her Outperform rating and $125 price target on the stock today, saying she’s as “confident as ever” that JPMorgan is in an enviable competitive position. What’s more, she’s happy to hear that the bank is committed to expanding into new markets, which she says has been a “long time coming.”

Shares of JPMorgan ended up 1.3% at $115.67. The stock had a strong 2017, and Katzke, much like Barron’s, has been on the record arguing that it can keep gaining. —Teresa Rivas

Source: CNBC

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