Thursday, March 23Welcome

Dow erases losses, helps tech rally overcome dollar pressure

If bond yields fall and the dollar peaks, it could form a bottom for equities, says Mike Wilson

The Dow Jones Industrial Average erased previous losses as rising tech stocks offset dollar pressure.

The Dow is up 14 points, or 0.1%. The S&P 500 was up 0.6% and the Nasdaq Composite was up 1.4%.

Consumer goods and information technology rose 1.3% and 0.8% respectively, supporting stocks. Casino stocks outperformed after news that China would allow tour groups in Macau for the first time in almost three years. Wynn Resorts was up 12.4% and Las Vegas Sands was up 11%. Tech stocks Enphase Energy and Salesforce rose 2.3% and 1.9%, respectively.

The British pound fell to a record low against the US dollar on Monday. The pound fell 4% at one point to his all-time low of $1.0382. The Federal Reserve’s aggressive rate-hiking campaign, coupled with the UK tax cuts announced last week, sent the US dollar sharply higher. The euro hit its lowest since 2002 against the dollar. A surge in the US dollar could hurt the profits of US multinationals and could also wreak havoc on global trade as many of them trade in dollars.

“A strong dollar like this has historically sparked financial and economic crises of some sort,” Michael Wilson, chief U.S. equity strategist at Morgan Stanley, wrote in a report. Well, this would be it.”

Traders are keeping an eye on the S&P 500 for Monday’s bear market lows. The S&P’s annual low for June was 3,666.77. After briefly dipping below that level, he closed at 3,693.23 on Friday. The annual benchmark intraday low is 3,636.87. Trading below these levels may encourage selling in the market.

Stock markets ended a tough week on Friday, with blue chip Dow hitting a new intraday low of the year and closing 486 points lower. His broad-market S&P 500 temporarily fell below his June close, closing down 1.7%. The Nasdaq Composite of tech stocks fell 1.8%.

Another mega rate hike by the Federal Reserve last week triggered the latest drop in the market. The central bank indicated he could raise interest rates to 4.6% before pulling back. Forecasts also show that the Fed is planning aggressively this year, raising interest rates to 4.4% before 2022 is over.

Bond yields soared after the Fed hiked rates by another 75 basis points. Interest rates on 2-year and 10-year government bonds hit record highs not seen in more than a decade. On Friday, Goldman Sachs lowered its year-end target for the S&P 500 to 3,600 from 4,300.

Interest rates rose again on Monday, with the 2-year US Treasury surpassing 4.29% at one point in the day.

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