Hidden behind the talk of earnings season is a catalyst that may shake the footing of the stock market.

This catalyst is interwoven through all aspects of economies, governments, and businesses.

Will this be the lynchpin that sends the market toward a bottom or will it boost the market as its influence wanes?

Outside influences on stock market key to direction

Traders have to consider a variety of outside influences that can affect the stock market direction.

These include:

• Tumbling new home sales
• Mortgage rates rising higher
• Gross domestic product (GDP) numbers
• Negative economic data
• Federal Reserve (Fed) interest rate hikes
• Crumbling railway worker contract negotiations

While some of these influences may be “baked” into the stock market, reaction to others such as Fed rate hikes and a potential rail worker strike may not be so predictable.

This leads to uncertainty that can create volatile rallies and pull backs in a stock market trending in bear territory.

U.S. GDP numbers are set for release Thursday morning, and are the next “big” outside influence to watch. Estimates are that GDP will come in at 2% or higher for the third quarter, and an increase over the previous two quarters of a contracting economy.

More economic data also hits the markets on Friday with the Personal Consumption Expenditures (PCE) price index report. PCE tallies prices consumers pay for goods and services.

U.S. dollar influences bulls, bears

What is the one ever-present catalyst that many retail traders miss within all the good and bad news?

The mighty U.S. dollar.

“Everything here is a derivative of the U.S. dollar,” said John Carter, Founder of Simpler Trading. “The U.S. dollar last week was trading at $114, since then it has dropped to $111. That is very, very bullish for the markets.”

The stock market rallied higher for almost a week (as the dollar declined) before stumbling with mixed results today. The Dow jumped higher in early trading before losing those gains by early afternoon while the S&P 500 and Nasdaq (both heavily influenced by struggling technology stocks) were down throughout the session.

The U.S. Dollar Index (DXY) was trading down by $1.25 on the day as the stock market tried to regain its rally fever from last week.

“Just think of the U.S. dollar as the most important thing on the planet, and it is,” John said.

Of all the outside influences affecting the stock market, John watches the dollar daily for a sense of direction and any changes in trend within the equities.