What's driving our stock market higher in the face of a recent slowdown in the economy? I wrote about this relationship back in 2009 here U.S. Dollar Weakness and the Markets. It's been obvious that the Fed Bernanke prefers a weak dollar to fuel a higher stock market. A weak dollar should also have a positive impact on our exports, as they become more competitive in the global market. The downside to a falling dollar is inflation, which we see in oil, gas and food commodities. Below is a chart showing the inverse relationship that the falling dollar has with a rising stock market (S&P 500).
Bottom Line: As long as the dollar keeps falling against other currencies we should see higher stock prices. Most would prefer an economy that is improving on it's own merits, with tame inflation. I would view any sustained strength in the dollar as an end to a higher stock market.
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