MarketBites: Market Rallies, Strong Dollar Sends Warning
Portfolio Manager Commentary:
Stocks finally experienced a broad-based rally on Tuesday that we haven't seen in over three weeks. The tech-heavy NASDAQ led the market gains with mega-caps such as Apple and Google bouncing back from Monday's selloff. What's behind the bullish sentiment?
Earnings have been a mixed bag, but it seems they are not as lackluster as the market was expecting. So far, banks struggled to impress, IBM showed weakness, and Johnson & Johnson (J&J) beat estimates but warned of foreign exchange headwinds due to the dollar's recent rise. A strong dollar lowers the overseas profits of American companies. Therefore, Tuesday's pullback in the dollar against all Group-of-10 peers except the yen helped buoy investor sentiment.
In Europe, the European Central Bank is expected to raise interest rates by either 0.25% or 0.50% for the first time in more than a decade in an effort to fight inflation. Meanwhile, the European Union is preparing to tell members to cut gas consumption "immediately" to preserve supplies for the winter.
Chart of the Day:
Here is an interesting table put together by The Macro Compass, showing inflation before and after a recession. The research indicates that recessions are the kryptonite of inflation.