It’s been a short and quiet week on Wall Street with a welcome break from the volatility the market has seen for much of the summer. The market traditionally cools down around now, making September one of the least profitable months of the year. But as always, we look for the dips and are ready for a bounce back to support in the market, which means taking more profits.
The Power of the Dollar
One of the keys behind our neutral-bullish stance is the strength of the dollar, which hasn’t been this strong since the era of the dot-com boom. (Don’t worry – we don’t see another of those happening.) A rising dollar is a problem for exporters, but it’s a boon for importers and attracts foreign investors. International traders now have an extra incentive to invest in the U.S. stock market.
This is good for service businesses and retailers because it takes fewer stronger dollars to buy imported goods. Because of the mostly consumption-based U.S. economy, cheaper imports should help lower inflation levels and increase spending.
For example, consider a product that a retailer imported from Germany six months ago that cost 100 euros. At the time, it cost $111 to buy 100 euros to pay for the product. Today, it costs just $100 to buy 100 euros.
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That means the effective price of that German product has fallen by 9%.
It’s not just the euro either – the dollar is gaining against just about every major currency, including the Japanese yen, British pound, Canadian dollar, and Swiss franc.
Bottom line: We are still bullish on tech and retail stocks. Buyers and production managers are betting on the dollar’s strength and inflation dampening, which should boost spending. We’re looking with interest at retailers like Costco Wholesale Corp. (COST), Target Corp. (TGT), Walmart Inc. (WMT), and Dollar General Corp. (DG), which should be able to leverage dollar strength for shareholders.
We’ll be back on Tuesday with more stock market insights. In the meantime, if you have any questions about options trading, specific stocks or bonds, or market trends in general, we’re happy to answer them. Just email [email protected] or leave a comment under one of the videos in our YouTube livestream, Learning Markets.
John Jagerson & Wade Hansen,
Editors, Trading Opportunities
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