The US Dollar (Again)
If we sift through all the noise, the mass layoffs in big tech, the influx of mixed earnings calls, or even the endless opinions on what moves The Federal Reserve will take coming into the second quarter of the year; the one indicator that has had any real value over the past year has been the relationship between equities and the US Dollar. This strong negative correlation has been in place since 2016 but continues to be the driving force behind major moves in either direction.
After breaking down below former support toward the end of January, the US Dollar rallied for most of February to the former prices from the beginning of the year where it has paused again. At the same time, and as expected given the negative correlation, we saw stocks begin to back off from their impressive start to the year. Given that February is also a weak period seasonally for stocks, none of this was particularly surprising. The most important thing now is deciding where we go from here. If that’s it for the rally in the US Dollar for now, it would coincide with us entering the second-strongest seasonal period for stocks. Given what we just witnessed last month, it would make sense that stocks begin to catch a bid again.
Going back to the surface-level noise for a second, sentiment is still incredibly pessimistic. Financial news outlets are still talking endlessly about higher interest rates, Federal Reserve gossip, and recession. The market has a funny way of separating even the most informed investors from their money. Now may be the perfect time to take advantage of being aware of what is happening beneath all the doomsaying. Even if the index is still struggling to move anywhere but sideways, many of the less heavily weighted sectors continue to show relative strength and offer opportunities in this market environment.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. The content is developed from sources believed to be providing accurate information.