Market observers recently noticed the inverse correlation between the U.S. dollar index, or DXY, and the S&P 500-stock index, writes Matt Phillips for The Wall Street Journal. Some believe the dollar is set to reverse, but will this result in a pullback in the stock market? (ETFs to take shelter from depreciating dollar).
Oscar Gruss Chief Executive Michael Shaoul produced a chart of the DXY and the S&P from 1990 to 2009, which revealed that the two indexes moved in the same or opposite direction at different times. It is noted that at areas of high correlation, the situation has swiftly reversed course. Shaoul explains that during times of flight-to-safety, DXY’s correlation with the S&P will hold, and the S&P 500 will drop.
However, “if the recovery in the [U.S. dollar] is driven by a stream of better than expected U.S. economic news and corporate earnings then this may be precisely the time for the correlation to move back into positive territory with a recovering USD and rising SPX taking place simultaneously,” Shaoul wrote.
For more information on the dollar, visit our U.S. dollar category.
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Max Chen contributed to this article.