The dollar holds the key to a burgeoning bull run in stocks: Morning Brief

MARKET_WATCH Finance

This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. SubscribeThursday, December 1, 2022Today's newsletter is by Jared Blikre, a reporter focused on the markets on Yahoo Finance. Follow him on Twitter @SPYJared. Read this and more market news on the go with Yahoo Finance App.For stock market investors, November finished with a bang.A late-day rally on Wednesday swung the Dow into what some will consider bull market territory, defined as a 20% rally off recent lows.In November, major U.S. indexes posted respectable gains for the month, with all eleven S&P 500 sectors closing in the green. 

 

The Dow finished up 5.7%, the S&P 500 up 5.4%, and the Nasdaq Composite up 4.4%.SPDR S&P 500 Sector ETFs, November 2022 returns. (Source: Yahoo Finance)Fed chair Jerome Powell stole the show Wednesday, hinting the Fed will slow down its blistering pace of rate hikes in its next meeting in a few weeks.That was all it took for the Nasdaq and the S&P 500 to post their second-best returns of the month, with the latter closing over a key technical level — its 200-day moving average — for the first time since April.

 

The Nasdaq — which has lagged the Dow recently by the widest margin since the dot-com bubble — played a game of "catch-up" Wednesday, as the downtrodden megacap sectors of Tech (XLK), Communication Services (XLC), and Consumer Discretionary (XLY) finally found some love.Also key to any continuation of this recent trade is the dollar, which just wrapped up its weakest month since 2010.In short: higher interest rates in the U.S. — and the Fed's promise to hold them high — have been drawing in foreign investors, bidding up the dollar. A strong dollar tightens financial conditions, which generally weighs on risk markets and commodities.At least, this was the case into late September when the dollar peaked.But the dollar eased off in October and sold off big in November, along with rates, a slide that catalyzed rallies in risk assets.Currently, the dollar index is sitting on top of its 200-day moving average, just like the S&P 500. 

 

In contrast to the S&P 500, however, which has been facing resistance from a declining 200-day, the dollar is touching support on a moving average trending higher.If the greenback were to fall through this key level, it would all but guarantee a nice end-of-year rally in the stock market, a potential boon to institutional investors that often seek to hold winners at year-end.

 

Should the dollar rebound from this key support level, the stock market could face another headwind.But given how markets have traded this year, it seems the dollar — not stocks — will be making the call on the market's near-term direction.Meanwhile, year-ahead forecasts from Wall Street banks rolling out this week show consensus expectations are for more softness in the stock market.Though as we saw Wednesday, even those beaten-down megacaps and high growth names can show flashes of life as well.What to Watch TodayEconomy7:30 a.m. ET: Challenger Job Cuts, year-over-year, November (48.3% during prior month)8:30 a.m. ET: Personal Income, October (0.4% expected, 0.4% during prior month)8:30 a.m. ET: Personal Spending, October (0.8% expected, 0.8% during prior month)8:30 a.m. ET: PCE Deflator, month-over-month, October (0.5% expected, 0.3% during prior month)8:30 a.m. ET: PCE Deflator, year-over-year, October (6.0% expected, 6.2% during prior month)8:30 a.m. ET: PCE Core Deflator, month-over-month, October (0.3% expected, 0.5% during prior month)8:30 a.m. ET: PCE Core Deflator, year-over-year, October (5.0% expected, 5.1% during prior month)8:30 a.m. ET: Initial Jobless Claims, week ended Nov. 26 (235,000 during prior week)8:30 a.m. ET: Continuing Claims, week ended Nov. 19 (1.5701 million during prior week)9:45 a.m. ET: S&P Global U.S. Manufacturing PMI, November final (47.6 expected, 50.2 during prior month)10:00 a.m. ET: Construction Spending, month-over-month, October (-0.2% expected, -0.2% during prior month)10:00 a.m. ET: ISM Manufacturing, November (49.7 expected, 50.2 during prior month)10:00 a.m. ET: ISM Prices Paid, November (46.7 during prior month)10:00 a.m. ET: ISM New Orders, September (48.5 during prior month)10:00 a.m. ET: ISM Employment, November (50.0 during prior month)WARDS Total Vehicle Sales, November (14.60 million expected, 14.90 prior month)EarningsAmbarella (AMBA), American Outdoor Brands (AOUT), Big Lots (BIG), ChargePoint (CHPT), Designer Brands (DBI), Dollar General (DG), G-III Apparel (GIII), Kroger (KR), Li Auto (LI), Manchester United (MANU), Marvell Technology (MRVL), Patterson Companies (PDCO), Toronto-Dominion Bank (TD), Ulta Beauty (ULTA), Veeva Systems (VEEV), Weber (WEBR), Zscaler (ZS)—Click here for the latest stock market news and in-depth analysis, including events that move stocksRead the latest financial and business news from Yahoo FinanceDownload the Yahoo Finance app for Apple or AndroidFollow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube 

 

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