With several Fed members speaking this week and none of them dispelling prospects of a rate hike in December, US$ strength continues to act as a headwind on risk assets. Oil and gold prices are down, flirting with their August lows, while copper has fallen to levels last seen in summer 2009. With the S&P/TSX losing ~3% this week, the index has now fallen to 2001 lows in relative terms to the S&P 500. Interestingly, most commodity equities and resource currencies such as the C$, A$ and NZD$ are holding above summer lows, as are emerging market debt and equities. Time will tell if this is a positive divergence or simply a pause before a relapse. The DXY holds the key here. At 99, the index is one point shy of its March high. A push above this resistance would likely send another deflationary shock and spook risk assets. Fortunately, over the last four Fed tightening cycles, the US$ weakened six and 12 months after the first Fed hike. Note, US$ depreciation occurred even though the Fed monetary policy was tighter than at the ECB and BoJ.
The stronger-than-expected employment report coupled with the recent Fed commentary, has most anticipating the initial Fed rate hike in December. As this drama plays out, many believe the current environment is unique, which could invalidate Tony Dwyers's longstanding bullish fundamental core thesis.
Tony reiterate his 2015 and 2016 S&P 500 (SPX) targets of 2,150 and 2,360, respectively. His overweight sectors remain the Financials, Consumer Discretionary and Info Tech sectors.
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