What's moving the stock market these days? The answer is the strength or weakness of the US Dollar Index.I wrote about this phenomenon some time ago here U.S. Dollar Weakness and the Markets. Below is a chart of the inverse correlation or non-correlation between the US Dollar and the S&P 500 Index. Notice when the dollar strengthens like today, and yesterday, the stock market moves lower. Notice the chart of the non-correlation between the two. US Dollar in red, S&P 500 in black.
Stocks like a weaker currency, because in general companies become more competitive selling their items world wide. The dollar has gained strength for two reasons: First Japan is actively intervening in their currency to drive it lower to become more competitive, and secondly, the debt problems in Europe have also led to a lower Euro vs. the Dollar.
Bottom Line: Monitoring currencies has become just as important as stock indexes around the world. So for now if we keep experiencing dollar strength then I would continue to expect some weakness in stocks at the same time. Thank you for stopping by.
Interesting graph and opinions.
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