Saturday, November 14, 2009

S&P 500 and Dollar Index still inversely correlated ...


As the attached chart shows the falling dollar continues to be a benefit to stocks and remains inversely correlated to equity prices.  The short-term benefits of a weaker dollar are clear: Higher equity prices, exports and corporate profits in coming quarters that will support economic growth.  Longer term the downside to a weaker dollar is the increased cost of financing the U.S. budget deficit and a reduction of consumers' purchasing power. The more immediate risk is that further downward pressure on the dollar will drive up oil prices to the point of constraining household spending.

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