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Dollar Rout Dings Stocks

Anthony Mirhaydari

Stocks finished with quiet gains on Wednesday. But the closing numbers mask the churning, volatile session that marked a 300-point swing in the Dow Jones Industrial Average from its high into an excursion into negative territory.

The catalyst was a rout in the U.S. dollar spurred by comments from Treasury Secretary Mnuchin that he wasn’t concerned about the current level of the greenback and that a weaker currency was good for trade. It was always an unspoken rule that the executive branch would also tout the “Strong Dollar” policy while privately wishing for the mercantilist dream of currency devaluation. A violation of this sent foreign exchange traders scurrying.

In the end, Dow Jones gained 0.2% (after being up 0.4% at the high and down 0.4% at the low), the S&P 500 lost 0.1%, the Nasdaq Composite lost 0.6% and the Russell 2000 lost 0.7%. Treasury bonds weakened, pushing the 10-year yield to 2.65%. Crude oil climbed $1.45-per-barrel, closing near $66. And gold surged as the dollar was slammed.

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Dollar Rout Dings Stocks

General Electric Company (NYSE:GE) was again the most active issue, losing 2.7% after announcing the SEC was investigating a larger-than-expected legacy business charge off. United Continental Holdings Inc (NYSE:UAL) fell 11% after announcing a plan to boost capacity growth 4% to 6% in 2018 and likely in 2019 and 2020 on fears this could lead to an industry price war.

Gold miners led the way with a 2.4% gain while airlines were the laggards, down 6.8%. Decliners outpaced advancers by a 1.2-to-1 ratio. The dollar fell 0.9% to 89.05, hitting a fresh three-year low.


Conclusion

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The dollar’s decline caps a 5.6% decline from the early November high and marks the worst start to a year for the greenback in 30 years.

A number of factors — not just Mnuchin — are driving the dive, including higher inflation expectations, worries about the looming debt ceiling/budget/immigration fight and the acknowledgement that the GOP’s tax cut plan will add more than $1 trillion to the national debt over the next 10 years.

Oh, and the nascent trade war between the Trump Administration and countries like China, Canada and Mexico.

The last time the dollar struggled like this, and stocks tried to ignore it, was in 1987. No lie.

Check out Serge Berger’s Trade of the Day for Jan. 25.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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Anthony Mirhaydari is the founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.

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