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Global Macro: Stocks Hit Record on Fundamentals

NEW YORK (TheStreet) -- For all of the speculative trading surrounding Federal Reserve Chairman Ben Bernanke's statements these past few weeks, the markets on Thursday traded on fundamentals.

Unemployment numbers fell, beating expectations and proving that the labor market recovery is sustainable. Similarly, the Philadelphia Fed report for July hit its highest levels in two years. With the stronger economy, equity markets reached record highs.

The first chart below is of CurrencyShares Japanese Yen Trust (FXY) over PowerShares DB US Dollar Index Bullish (UUP).

The dollar has shown strength as investors continue to price in a September start to an end of monetary easing. Japanese elections, however, have led the yen to strengthen recently.

Japanese Prime Minister Shinzo Abe has taken a strong reflationary stance on monetary policy, which has weakened the yen and strengthened the Nikkei index.

Upper house elections take place on Sunday, which -- if Abe can pull out a victory -- would resume the reflationary stance in Japan. Until that time, the yen and Japanese assets should remain muted.

The next chart is of United States Oil ETF (USO). Oil has similarly seen a strong rise recently as data have reinforced a move higher. Labor markets have been stronger and expectations for inflation have been revised upward.

As equity markets hit new highs, oil has gained in lockstep. That fundamentals are driving the move is a bullish signal, considering the artificial nature of geopolitical risk. Geopolitical risk tends to be fleeting, and assets can collapse when the risk is removed from the market.

The move in oil looks slightly overextended, and could pull back short term. But the outperformance of stocks in cyclical sectors and commodities is a bullish indicator for the U.S.

The final chart is ofiShares Barclays 20+ Year Treasury Bond (TLT). Long Treasury bonds have underperformed recently as markets have begun to accept an end to quantitative easing.

The downtrend remains very strong and the yield curve has continued to steepen as the long bond has sold off faster than short-term Treasuries.

Rising rates reiterate the point that the U.S. dollar will continue upward. The dollar has fallen from highs in recent weeks leading up to Bernanke's testimony this week. Stronger inflation readings and rising rates, however, will eventually push the dollar higher, as will weaker policy stances from foreign central banks.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a senior at Georgetown University earning a degree in Economics.

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