Is The US Dollar Signaling That The Worst Is Behind?

1.) US DOLLAR – A macro signal that helps to consider whether a corrective state in markets is ending or just beginning is how the US Dollar acts and the signals it gives. Could/should the U.S. Dollar weaken on next week’s dovish CPI “news”? Sure! Remember, we’ve been talking about decelerating inflation data for a bit now. So the US Dollar and rates should start to decelerate some. The print next week likely just confirms that decelerating inflation. But markets don’t look backward; they are always looking forward. So what’s the signal? It’s the rate of change of price, volume, and volatility. When that calculation starts to signal lower highs, it is suggesting that the Dollar's strength may be coming to an end. Today is day 2 of that weakening signal. That’s important since there are large inverse correlations for the Dollar and the S&P 500… meaning if the Dollar does start to weaken here (looking more likely), then a falling Dollar should help act as a tailwind for the S&P 500.

2.) BROADENING – In the midst of market corrections, an investor should look for whether the weakness is broad or isolated and if it is due to a decelerating earnings picture. If it is, then more bad news might be on the horizon. If not, then it’s likely just some profit-taking or internal market rotation. Of course, the first would create a scenario where becoming more defensive would make sense, whereas the latter would suggest that the bulls are still in control. Based on the AI and non-AI earnings data, non-AI earnings growth is accelerating, which underpins (although doesn't guarantee) the argument for a broadening out and/or rotation within a still reasonably healthy market.

3.) COFFEE – I’m a coffee lover. You might think, what does that have to do with the investment landscape? Not much. But, if you’re a coffee lover as well, trading activity in coffee futures suggests you might want to stock up. A sudden burst of extreme price volatility in the coffee market has caught traders and analysts off guard and left them bracing for more instability. Now, this is one of those vol spikes that, for coffee… could go either way.