The effect of the dollar on the S&P 500

Updated

The value of the dollar can make a major impact on the value of the stock market. As a rough base line DXY is around 100 when everything is going well for the dollar (not too strong or weak). I simply scaled SPX by DXY/100 (will be 1.0 when DXY = 100). What you get is a a normalized version of the SPX that minimizes the effect of the dollar. IMO, what seems to happen is that the Fed via QE (clearly other things can affect the dollar but mostly interest rates and money printing) can reduce the value of the dollar, which in turn artificially inflates asset prices. The mechanisms are complex, but the results is the same. I think we could all agree that this version of the S&P looks a lot more realistic.

investopedia.com/articles/investing/101215/how-fed-fund-rate-hikes-affect-us-dollar.asp

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If you are into Elliott Wave, then you will really like this chart. It shows that the S&P is really in a corrective Wave B after the big drop last March, which I think many people would find more appropriate than what we are actually seeing in prices. It opens up the question: Did the Fed find a way to eliminate or at least mitigate bear markets and crashes? I don't know. Usually, things like this work for some amount of time, but eventually they get over used (abused, what president/politician would do that) and lose their effectiveness. I guess only time will tell.

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Everything in one chart

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Feb 18. Just a follow up on the DXY pattern. So far it is right on the pattern.

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Monday 2/22 update

Dr_Roboto

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