Weaker Euro May Not Equal Weaker Stock Market
On Monday pro traders were keeping a close eye on the action in the euro, which slipped lower while the S&P held it’s ground.
The divergence was among the first times in recent memory when the stock market was able to shrug off weakness in the European currency and post gains.
”US equity markets have been tracking the move in the euro very closely,” says strategic investor Dennis Gartman. “(Typically) if you get a ten tick rally in the euro, then up goes the Dow. And when you get a break, down goes the market.
But that didn’t happen on Tuesday. Is the US stock market finally starting to ‘de-couple’ from the euro?
Strategy Session with the Fast Money traders
Trader Brian Kelly think the market may be on the brink of a turning point, that is the dynamic of weaker euro and weaker stock market may, in fact, be coming to an end. “The correlation is starting to break,” he says.
Kelly thinks once immediate concerns about Europe are bridged relative strength in the US will prevail as a bullish catalyst for stocks. "Look at retail sales," he says. "They were ok - below expectations but still positive. For right now this story is in tact."
(Retail sales rose 0.2 percent in November with more spending on retail goods considered a sign the US economy continues to grow at a slow but steady pace.)
If you're looking for ways to play, he suggests looking at companies that generate the lion's share of their revenue from the US. “That’s the best place to be,” he says. In the past he's suggested a long position in the IWM.
Two other Fast Money pros are on the other side of the trade.
“Is it possible for stocks to do well with the euro currency lower? I’m not so sure about that,” says trader Steve Cortes. “I see that on Tuesday it was the reality but I have to wonder how long that can last.”
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That's largely because Cortes does not expect the euro to stabilize but trend lower - a lot lower. By default that would make the dollar stronger. In turn, that would have a negative impact on US based multi-nationals that generate a lot of revenue from Europe.
Trader Stephen Weiss agrees with Cortes.
He thinks ultimately the euro goes to parity. In turn he’s cautious on even some of the best of breed names, such as McDonald’s . “Ultimately multi-nationals are looking at headwinds,” he says.
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Trader disclosure: On December 13, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Stephen Weiss Is long QCOM; Is long EUO; Is long BA; Stephen Cortes; Is Long Treasuries; Is Long (SVU); Is short Australian Dollar; Is short Euro Currency; Is short (AAPL); Is short Crude Oil Futures; For Dan Dicker Is long RIG; Is long SLB; Is long BHI
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