Why the Dollar Rises as Stocks Stall and Bonds Fall

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.
[dollar bills]

Stocks Stall, Bonds Fall and the Dollar Spikes

The February jobs report was the big news this week, and the better-than-expected data caused traders to fear the Federal Reserve might pull the trigger on that long-awaited interest rate hike as soon as the June Federal Open Market Committee (FOMC) meeting.

The data from the Labor Department released this morning showed that employers added 295,000 new jobs during the month, well above the consensus estimate that called for only a 235,000 job increase. The unemployment rate also fell from 5.7% to 5.5%, the lowest that metric has been in almost seven years.

UUP_030615

The reaction from traders caused stocks to stall, bond prices to fall and the value of the U.S. dollar vs. rival foreign currencies to spike. In fact, the U.S. dollar has been on a mighty run so far in 2015, with the benchmark U.S. Dollar Index ETF, the PowerShares DB US Dollar Bullish (UUP), up nearly 8%. I remember when a 4% annual spike in the value of the greenback was considered an unusually volatile year for the dollar. Now, currency traders are doubling that gain in just over nine weeks.

A weaker euro, along with a weaker Japanese yen, largely has been supporting the relative value of the dollar here. Today, however, the notion of a potential rate hike in June is fueling dollar bulls to go long in the greenback via UUP.

This trend higher in the dollar is a circumstance likely to continue. While a stronger dollar is generally good for consumers, it could have the very negative effect of what’s called an “earnings recession” for multi-national companies that do most of their business in exports.

If you want to get a glimpse of what could be a strong dollar-inspired headwind on corporate earnings going forward, then keep an eye on UUP.

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ETFs for India’s New Bull Market

India is doing great. The population is well educated, the demographics are fabulous and the political leadership is pro market and generally committed to implementing pro-growth economic policies.

Now, recall that last year we pounded the table on the Chinese bull market, while telling you about the numerous ETFs you could use to gain exposure to the Chinese equity markets.

This year, India could be the country that rides a new bull wave. Because of this possibility, you need to be aware of all of the ETFs you can use to take advantage of India’s new bull market.

The table below shows the top seven funds pegged to the India equity market. The rankings are from the highest to lowest in terms of assets under management, or AUM.

Ticker Name 2014 % YTD % AUM ($MLN)
INDA ISHARES MSCI INDIA ETF 20.96 11.22 3,124.31
EPI WISDOMTREE INDIA EARNINGS 26.43 8.80 2,472.37
INDY ISHARES INDIA 50 ETF 27.18 10.70 965.29
PIN POWERSHARES INDIA PORTFOLIO 19.13 10.48 645.81
SCIF MARKET VECTORS INDIA S/C 40.98 11.73 308.80
SMIN ISHARES MSCI INDIA SMALL-CAP 51.81 10.07 45.63
SCIN EGSHARES INDIA SMALL CAP ETF 45.92 9.18 30.24

Source: Bloomberg as of 3.5.2015

The most widely held fund here is the iShares MSCI India ETF (INDA), which tracks the top 85% of companies in the Indian securities market as measured by market capitalization.

In the chart below, you can see the significant relative outperformance of INDA vs. the SPDR S&P 500 ETF (SPY).

INDA_030615

Year to date, INDA is up about 9.6%, while SPY is only higher by approximately 1.1%. If we look to the funds during the past 12 months, we have INDA sporting a very large 29.2% gain, while the SPY is up a healthy, yet relatively puny, 10.5%.

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The new bull market in India is here, and it’s likely to hang around for a lot longer. If you like investing in growth areas around the globe, then there’s a lot to like about India.

Do you want to hear more details about the India bull market? If so, then check out today’s ETF University podcast, which is all about how you can use ETFs to ride India’s new bull market.

Livin’ It Down

My ship came in and she sunk it
I was the toast of the town and she drunk it
I had a run of good luck and she ran it right into the ground
And now she’s puttin’ on a show and I get to play the clown

–Delbert McClinton, “Livin’ It Down”

The great Delbert McClinton knows how to deliver a tune, but in this classic song the lyrics could also apply to investing. You see, just when you think you’ve got the market figured out, and that nothing can go wrong, circumstances can turn right around and bite you. Remember that the next time someone tells you about a “sure thing” investment.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Weekly ETF Report readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

In case you missed it, I encourage you to read my e-letter column from last week about whether ETFs are as risky as other investments. I also invite you to comment in the space provided below.

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With your April $85 MasterCard call options (MA150417C00085000) now up 101.25%, sell all of your remaining options to lock in these triple-digit percentage gains. Nicholas Vardy

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