Here’s the Real Catalyst Moving the Market

December 1, 2022  |  Michael Reilly

There will always be an endless string of news bites telling us why the market is moving in one direction or the other.

I’m sure you’ve heard them…

It’s interest rates or inflation.

It’s Opec, Russia, or the latest crypto crash.

It’s not that those things aren’t important…

But they tend to be more of a distraction – a smokescreen.

Want to know what the real catalyst is moving the market?

It’s the U.S. Dollar (USD).

It’s been said before, but it’s so important that it needs to be said again: One of the biggest catalysts moving markets this year has been the strength of the U.S. Dollar.

And I’m going to show you how.

But first, a little about the U.S. Dollar Index or “Dixie” (DXY).

The DXY is an index that illustrates a relative comparison of the value of the USD to a basket of foreign currencies.

The Euro, the Yen, and the British pound are the biggest components of the index, with the Euro accounting for almost 58%, the pound 12%, and the Yen 13%.

The index measures the strength of the USD versus these other world currencies. If the index is rising, it means that the dollar is strengthening against the basket and vice-versa.

You’re going to want to understand that relationship, and the reason is about to become crystal clear…

It’s impossible to deny the strong negative correlation between stocks and the USD.

You see, stocks rally on USD weakness and sell-off on USD strength.

It’s all about the Dollar. The Dollar has been the real catalyst.

The USD has had a near-parabolic move off the 2021 lows and hasn’t looked back since.

That is, until now…

Let’s take a closer look at the DXY.

Here’s the Dollar index since it peaked in September 2022 at a 20-year high.

The USD is now well off its September 2022 high.

As long as the Dollar continues its swoon, stocks will continue to rally.

But does this mean the Dollar is done? Not necessarily – only time will tell.

So we’ll continue to watch for any significant changes to the current trend of the DXY and report back to you here…

In the meantime, be adaptive to changing market conditions and patient as markets continue to sort themselves out.

We will continue to update our models each month to reflect the current market environment because, after all, that’s what our models (and we here at Avalon) do best.

If you’d like to learn how we can help you adapt to the markets like we do, schedule a free 1-hour consultation with us now.

And as always, until next time, invest wisely.

Michael Reilly

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