Strong Dollar Helps Small Caps

The large-cap indexes ($SPX) struggled this week in the face of global uncertainty, a rebounding dollar ($UUP) and solid employment report. I have received quite a few e-mails asking why a strong dollar ($UUP) is not beneficial for large-cap names. The simple answer is that a lot of these firms do overseas business. A strong dollar hurts foreign buying power, which results in the goods being potentially more expensive and less attractive to buy.

But a drag for large-caps ($SPX) could be a benefit for small-caps ($IWM). Small-caps ($IWM) are stocks that are domestically centric. Simply, they are focused here in the US. A strong dollar boosts buying power of the consumer at home, and solid employment only catalyzes this market even more.

This would explain why small-cap names held up and performed well last week. This also gives us a sector to focus on potential long set ups, especially if things start to get a little ugly into the summer.

Remember, you want to buy strong sectors on market weakness. Small-caps at this stage are stocks you want to have on your watch list for potential bullish candidates.

Have a great trading day!