This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Global Macro: Economic Data Back Up Fed

Stocks in this article: MDY OEF EWG SPY UUP

NEW YORK ( TheStreet) -- Tuesday's economic data backed the Federal Reserve's announcement last week that it may slow bond purchases if the economy strengthens as durable goods orders and existing home sales outperformed expectations. Alongside support from the People's Bank of China, global markets rebounded and riskier assets found buyers.

The first chart below is of SPDR S&P MidCap 400 (MDY) over iShares S&P Index (OEF), which measures strength of mid-cap stocks relative to large caps in the S&P 500. As smaller-cap stocks outperform larger ones, represented by upward price movement in the chart below, investor sentiment tends to be strong.

Since mid-May, this pair has trended lower, signaling that investors were favoring large-cap stocks and positioning portfolios defensively. The Fed's announcement last week brought this pair down to yearly lows.

As markets have stabilized, realizing that dire predictions of market weakness may be overstated, the price action has rebounded higher.

Many equity investors waited on the sidelines looking for more clarity about U.S. monetary policy and for a pullback after a long run-up in equities. Now, after the pullback, those investors are looking to be put money back in the markets.

The next chart is of SPDR S&P 500 (SPY) over iShares MSCI Germany Index (EWG), which measures the relative strength of U.S. equities versus German equities. Germany is perceived as the strongest European economy and thus is a good indicator of strength in the more industrial economies of Europe.

The U.S. economy showed more improvement than European economies through much of 2013. That led to U.S. equities outperforming their European counterparts and to a stronger dollar versus euro. The pair below correlates strongly to movements in the euro/dollar currency cross and is thus a good predictor of currency market movements.

As U.S. monetary policy came into question in late April/early May, this trend began to reverse. The U.S. dollar weakened and European assets, led by the German economy, began to outperform world equity markets.

The chart's price action this year has boiled down to economic outlook and clarity of central bank policy. The Fed's explicit plan for monetary tightening signaled U.S. dollar strength over the long term.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs