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.

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.