What do you think?
The dollar is up strongly today and that is certainly something new. Below is the trajectory of the dollar index since December 2016.
While the dollar has been trending lower, the US stock market has been trending to the upside. Below is what the S&P index has been doing over the same time period.
Why might they be related?
Well the impact of a weaker dollar has been a tailwind for corporate earnings - particularly multi nationals who have the potential to benefit from having their exported goods more competitive abroad. US earnings released over the last few weeks are a testament to that idea. They generally have been quite good.
If the dollar turns around, will the stock market turn around too in anticipation of less of a tailwind?
It could.
However, understand that it is dependent on how strong the dollar does end up getting. Right now, one day does not make a trend. However, if there is more dollar buying next week, that could start to have more of an impact on the stocks as well.
Certainly, there is some room to roam for stocks (to the downside) as well as the dollar (to the upside).
If the dollar does rally, will corporate earnings start to suffer right away? Not likely.
These types of things take time to turn around earnings (it is not immediate) both for US companies and foreign companies.
One thing to eye would be the reaction of the foreign stock markets. They have been touting "overseas" stocks (i.e. not US stocks) over US equities all year. If a higher dollar is bad for US stocks, it should be good for foreign stocks.
Once again, one day does not make a trend but if the dollar does turn around, we could start to see some flows out of the US equities and potentially into overseas stocks.
