Major Moves

The rumor that Herman Cain is being considered by President Trump for the Federal Reserve board had been floated before, so today's news wasn't a huge surprise. It seems unlikely that Cain would stand out in any material way, considering that the current Fed is dominated by extreme doves (when compared to their predecessors).

It may seem a little unorthodox; however, the current Fed chairman wasn't an economics academic either, so I don't expect the market to be disrupted if the rumor becomes official. Furthermore, Cain was chairman of a branch of the Federal Reserve Bank of Kansas City in the late 1990s. He has some relevant experience, regardless of whether voters liked his infamous 9-9-9 economic proposals as a political candidate in 2012.

What seemed far more interesting to the market today was industry- or company-specific news. Businesses in the cloud software business including salesforce.com, inc. (CRM), Adobe Inc. (ADBE) and Intuit Inc. (INTU) led the losers among large caps as investors took profits off the table and absorbed a downgrade on Micron Technology, Inc. (MU) that could have broader implications for business spending on technology.

Industrial stocks were the big leaders as The Boeing Company (BA) reported progress on a software fix for its 737s and investors speculated that a short-term resolution to the U.S./China trade dispute is near. Reports that China has agreed to important concessions in commodity purchases and corporate ownership seemed to lift investor expectations.

As you can see in the following chart, the Industrial Select Sector Index is still at resistance in the 770 range, but it hasn't given up any material gains as the market has slowed down over the past few sessions. Although I wouldn't consider a breakout in industrials to be as good a confirming indicator as small caps or transportation stocks, this is still a positive sign that bulls haven't left the market.

Performance of the Industrial Select Sector Index

S&P 500

The U.K.'s Parliament voted again yesterday to block the possibility of a no-deal Brexit in a measure that passed by one vote. On the one hand, this is good considering the threat of a no-deal Brexit to the global economy. But on the other hand, passing by a single vote isn't a good sign that politicians are in the mood to avoid Brexit entirely or construct a softer plan.

As I mentioned in yesterday's Chart Advisor issue, the back and forth in Brexit news will likely be the most important source of volatility in the short term. Although the major stock indexes were relatively smooth today, trendline resistance at the upper bound of the S&P 500's rising wedge is holding – and unlikely to break – while investors wait for more definitive news about the U.K.'s plans.

Read more:

Bulls Stampede Into Asia-Pacific ETFs

What Is Cloud Computing?

Advanced Micro Devices Shares Are Alerting Buy Activity

Performance of the S&P 500 Index

Risk Indicators – Strong USD Risks and Benefits

Most risk indexes I have been monitoring are creeping higher but in proportion to the general tone of the stock indexes. Without any signs of rising panic, I think optimism about the rally is warranted if more uncertainty about the external political issues (Brexit/tariffs) can be resolved.

However, one concern remains the strength of the U.S. dollar (USD). I have previously pointed out that the dollar is a drag on average earnings because it reduces the value of profits made overseas and makes U.S. exporters less competitive. This is a big issue, and the dollar's gains so far could be expected to take 4% to 5% off earnings this quarter alone.

However, while the strong dollar is a risk for the market on average, not all companies suffer from the shifting exchange rate. In the short term, a rising dollar can be a boost for companies that import products from overseas because their stronger dollars are converted into more units of foreign currency, essentially increasing the importing company's margins.

The companies I would usually put in the category of benefiting from a rising dollar are retailers. Some of the benefits of a rising dollar have been offset by tariffs imposed on China, but mid-range retailers like Target Corporation (TGT) or The Home Depot, Inc. (HD) are still able to use this to their advantage because they are not as dependent on Chinese imports as Walmart Inc. (WMT) or Dollar General Corporation (DG).

As you can see in the following chart, the USD as represented by the Invesco Dollar Bullish ETF (UUP) is back to resistance today. Those gains can explain how the consumer services sector index has beaten the S&P 500 by 50% so far this year.

Read more:

What Is a Trade-Weighted Dollar?

Discover the Consumer Services Sector

Constellation Brands Stock Rebounds on Earnings Beat

Performance of the U.S. dollar index

Bottom Line – Prepping for Friday's Labor Report

Investors are anxious to see the labor data that will be released by the Bureau of Labor Statistics tomorrow morning at 8:30 a.m. EDT. As I mentioned last month, the report was likely to swing lower in March to adjust for the extremely high readings in January and February. However, the surprising undershoot of 20,000 new jobs added in March's report seems likely to lead to an adjustment higher.

What I expect to see is a positive surprise in jobs added over the last month and a revision to increase the reported jobs added in March's report as well. If I am correct about that estimate, interest rates and stocks may be able to end the week on a positive note.

Read more:

Trading the NFP Employment Report

3 Takeaways From Tesla's Earnings Report

Learn the Basics of Investing

Enjoy this article? Get more by signing up for the Chart Advisor newsletter.