Using the Dollar to Get a Read on StocksInvestors have pulled money from equity funds for seven of the last nine weeks, says research firm EPFR Global. Even so, on Oct. 19 the Standard & Poor's (MHP) 500-stock index hit a 52-week high. Bank of America Merrill Lynch (BAC) technical analyst Mary Ann Bartels says to watch the U.S. dollar for clues to when the run is overdone. Since the financial crisis began, stocks and the dollar have moved in opposite directions. The currency has been falling since Mar. 6, and stocks started rising a few days later. The market is being led by commodity stocks, which benefit from a weakening greenback. (Most commodities are priced in dollars, so when the dollar falls vs. other currencies, commodity prices rise.) The dollar trades at 75.33 against a basket of currencies, its lowest point in over a year, but is nearing a price where technical analysts say buyers may jump in—72. If it holds there, beware. The S&P 500 is also near a technically significant level, 1120, which could bring heavy selling. A stronger dollar could mean a 15% pullback, says Bartels, who advises holding health care, consumer staples, and energy to dampen the blow.How to Play the Muni MarketAfter gaining 14% this year (as of Sept. 30), municipal bonds have hit a wall. From the end of September to Oct. 14, muni prices fell 3.8%. Municipalities are struggling, too: On Oct. 13, Washington State cut a debt offering by 36%, and Hawaii delayed its $623.5 million issue the next day in the face of low demand. Investor appetite was being tested further in the week of Oct. 19, with $11.3 billion in offerings expected to come to market. What's going on? Yields had fallen so far—as low as 2.19% on a seven-year AAA-rated bond—that buy-and-hold investors stopped buying, says John Mousseau, a portfolio manager at Cumberland Advisors in Vineland, N.J. So prices fell and yields rose. A seven-year bond now pays 2.66%, up nearly a half percentage point in three weeks. Investors buying now won't see a big price pop, he says: "They'll get more return from coupon income and less from price."A Temporary Reversal for Valmont's Stock?Valmont Industries' (VMI) blockbuster quarter—it beat earnings expectations by 47 cents—quickly turned into a rout as the company's stock plunged 14% in the two days following its Oct. 15 earnings announcement. Big gains in the metal-products maker's utility unit, which makes steel poles for energy transmission, had led shares to more than double since a February low. But with utilities scaling back, Valmont said growth likely is coming to an end. And other units, which had been counted on to pick up the slack, continue to struggle. Its engineered support unit, which makes streetlights, won't pick up until a federal highway bill is passed, and irrigation sales suffered as unseasonably cool weather forced farmers to delay their harvests.
Still, the pullback in Valmont's shares may be a buying opportunity for long-term investors, says Gabelli (GBL) analyst Anthony Fritz. "The outlook is still pretty weak," he says. "But in the end, Valmont is still a great company with good management."