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Thoughts on Global Selloff and the Dollar's Path to Decompressing




Before the jobs report was released on Friday, we wrote a commentary on the U.S. dollar. In light of the events over the weekend and Monday, we start with some comments on the global stock market selloff.

  • The broad stock market benchmarks are down about 3% this morning as several factors have lined up to create conditions for a sharp global selloff. A batch of weak economic data, notably Friday’s jobs report, sparked concerns that the Federal Reserve (Fed) may have taken its higher-for-longer rate policy too far.

  • After such a strong rally since last fall, valuations, sentiment, and investor positioning had become stretched. What markets are experiencing today is an unwinding of that bullish positioning, which is particularly evident in the yen and the so-called carry trade. Japan’s Nikkei suffered its worst one-day decline since 1987.

  • Where do we go from here? We anticipated more volatility, as we discussed in the LPL Research Midyear Outlook 2024, based on the size of this year’s move, evidence of stretched positioning and elevated valuations. A capitulating Fed, timely evidence of a growing economy, and a test of the 200-day moving average on the S&P 500 are some factors to consider as we wait for the market’s bottoming process to play out.

  • For more of our thoughts on this global bout of volatility, please follow the LPL Research blog.

Please let me know if you have any questions or if there is anything we can do for you please contact me at cyril.white@fourfinancial.com or (734) 272-4322 today!!

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