What Asset Class Rallied Last Week amid the Sell-Off?

For investors looking for a way to hedge the impact of a sudden change in market sentiment, gaining exposure to the U.S. dollar relative to foreign currencies may make a lot of sense as a tactical holding until the market fully absorbs the Fed’s intention and the timing of its eventual liquidity-curbing actions15.

1Refers to the price behavior of the Dow Jones Industrial Index and the S&P 500 Index for the 7/31/14 date.
2Source: Bloomberg, with the last one-day decline of the S&P 500 Index of 2% or more occurring on 4/10/14.
3Source: Bloomberg. The last day the S&P 500 Index broke its 50-day moving average was 4/10/14.
4Source: Bloomberg, for both 100- and 200-day moving averages, measured as of 7/31/14.
5Source: Camila Russo & Katia Porzecanski, “Argentina Declared in Default by S&P as Talks Fail,” Bloomberg, 7/30/14.
6Source: Sam Ro, “Traders Are Blaming Thursday’s Big Sell-Off on 1 Stat,” Business Insider, 7/31/14.
7Refers to S&P 500 Index.
8Refers to Barclays U.S. Aggregate Index.
9Refers to the price of gold, measured in U.S. dollars (not a specific index).
10Refers to S&P GSCI Index.
11Refers to the U.S. 10-Year Treasury note.
12Refers to the J.P. Morgan GBI-EM Global Diversified Composite Index.
13Refers to the iBoxx $ Liquid Investment Grade Index.
14Refers to the iBoxx $ Liquid High Yield Index.
15In this context, liquidity-curbing actions means raising of the Federal Funds Rate, which is the policy tool employed by the Federal Open Market Committee to tighten U.S. monetary policy, potentially slowing the pace of economic growth.

Important Risks Related to this Article

Investments in currency involve additional special risks, such as credit risk and interest rate fluctuations. Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty.