Tuesday, November 22, 2016

US Dollar and S&P 500 Correlation

Generally it's assumed that a falling dollar is good for equities since that trend has worked in the past.  Lately however we see that old assumption isn't working out the way we think it should.

Notice that lately, especially since the election, the US Dollar and S&P 500 have moved in near lockstep with each other.  Their moves are such replicas you'd swear they are the worlds best tango dancers.   So let's look at some historical charts below.


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Here we can see the motto "Dollar Down,  Market Up" is working very well from 2003-2007. But is the same story applicable to more recent market action?

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Here we can see for the last 5 years a rising dollar has had little impact on equities.  During the amazing Dollar rally in 2014 equities rallied with a stronger currency. They then trended sideways together in 2015. Now they both appear to be breaking out together in 2016.

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