If you want to know which global markets to own, you need to understand what's happening with the U.S. dollar.
It's really that simple... It's a major investment "tell."
As I explained yesterday, U.S. stocks tend to do well when the dollar is rising. However, if the dollar is falling, you really want to own emerging markets. They have a history of leading to huge gains during that setup.
This relationship holds true today...
The U.S. dollar experienced a major turning point at the start of this year. And it could have huge implications in the months ahead.
Today, I'll share where the dollar says we should be investing right now...
Yesterday, I said that emerging markets beat U.S. stocks through the end of 2020.
Few people realize this, given how much U.S. stocks soared after their pandemic lows. But it's true.
After that, the U.S. dollar bottomed in early January before taking off once again...
When the U.S. dollar turned higher, it started to show up in market performance yet again. Emerging market stocks were no longer the clear winner.
Since the U.S. dollar's recent low on January 5, U.S. stocks have been leading the way. Take a look...
The S&P 500 is up 27% since January 5. And emerging market stocks are actually down 3% over the same period.
In other words, U.S. stocks are back in the driver's seat again today. But that's not all... This outperformance should continue for months – or perhaps even years.
As I said, the U.S. dollar bottomed in January. That means the current trend has been in place for less than a year. Even more, the dollar just hit a new 52-week high in late September.
So if the recent uptrend is any indication, a new boom in the U.S. dollar is underway. And it can last much longer from here...
If you look back over the past several decades, you'll see that bull markets in the U.S. dollar tend to last for years...
Take the late 1990s rally, for example. The dollar boomed for five straight years. The U.S. Dollar Index soared from 80 in April 1995 to 118 in October 2000... That's a 48% jump.
The dollar also rallied for five straight years from mid-2011 through late 2016. It was another lengthy boom, during which the U.S. dollar's value soared 42%.
Now, to be fair, I did recently share that we could see an eventual peak in the dollar. Futures traders love the asset – and that's usually a sign that a reversal is coming. But we're still nowhere near peak levels of sentiment. And that means the current trend could continue from here.
If this turns out anything like the U.S. dollar's multiyear bull runs of the past, this move is just getting started...
In short, thanks to this investment "tell," we know when to put our money in U.S. stocks or emerging market stocks.
When the dollar is falling, emerging market stocks are the better bet. But today, it's the opposite scenario... U.S. stocks will likely soar alongside the value of the dollar in the months ahead.
Don't get caught on the sidelines when it happens.
Good investing,
Chris Igou
Further Reading
The Fed has poured trillions of dollars into the economy over the past year. So traders recently bet big that the U.S. dollar would fall in value. And it was likely the first sign of a contrarian opportunity... Read more here: The Most Contrarian Bet You Can Make Today.
"This Melt Down Indicator was crashing for years before stocks eventually peaked," Chris writes. It was an incredible warning sign for investors who knew to watch for it. And we expect to see the signal flash once again before the next market top... Learn more here.
While U.S. stocks are likely heading higher, one company could outperform the rest. And it has a major tailwind behind it...
BUSINESS IS PICKING UP FOR THIS INDUSTRIAL 'BELLWETHER'
Today's chart shows an industrial powerhouse hitting new highs...
Longtime readers know we like to use certain sectors as real-world economic "bellwethers." For example, the manufacturing, shipping, and construction industries can tell us a great deal about the economy... They show when production is strong, services are in demand, and folks are investing in infrastructure. Today, one industrial company is painting a bullish picture...
Fastenal (FAST) is a $35 billion distributor of industrial and construction supplies. It sells everything from nuts, screws, and bolts to piping equipment and power tools. Through the pandemic, Fastenal's Safety segment – which includes goods like face masks and disposable gloves – soared. But now that the world is getting "back to normal," demand for manufacturing and construction supplies is picking up... And in its most recent earnings report, Fastenal highlighted total quarterly sales of $1.6 billion – up 10% year over year.
As you can see, FAST has more than doubled off its March 2020 low. Shares are up 115% since then and recently broke out to a new all-time high. It's another sign the economy is getting back on its feet today...
