Global vs Domestic

BCA's Strategists expect the U.S. dollar to move meaningfully higher on a cyclical horizon. The inevitable upshot of a strong U.S. dollar is deteriorating profit breadth. Clearly, industries most reliant on exports and/or capital spending are most vulnerable. From an investment theme perspective, the upshot is domestic-oriented areas are poised to make a comeback relative to globally-exposed sectors, especially given their consumption vs. capital spending orientation. The recent sagging in pro-cyclical emerging market exchange rates after a peaking in financial conditions (shown inverted, bottom panel), reinforces that it is premature to position for a revival in developing country growth prospects. Renewed U.S. currency appreciation will pull up domestic relative to globally-exposed earnings estimates, supporting another leg up in the secular uptrend in the domestic vs. global share price ratio. bca.uses_in_2016_11_09_001_c1 bca.uses_in_2016_11_09_001_c1

Last week's blowout jobs report had the beautiful combination of strong growth and flat/rising underemployment rates. This supports our expectation of a Fed hike in December rather than one in September.Accelerating growth when the economy is approaching full employment suggests that the equity bull market is not over, though we are entering a more volatile phase.

A collection of 10 important charts to monitor closely through the summer months.

The Fed's decision to scale back intended interest rate hikes reflects economic reality.