You’re Still the One

July 12, 2023  |  Michael Reilly

This one’s for all the investors who are finding themselves bogged down with the endless amount of data that’s thrown their way on a daily basis. 

Today we’ll focus on just one chart to ease the data overload.

It’s not CPI, it’s not the employment numbers, or even what’s going on in Washington with J. Powell and his Fed cronies…

It’s much more straightforward than all that.

It’s the U.S. Dollar (USD) – and here’s why we’re looking at it right now:  


The USD and the S&P 500 are negatively correlated. Meaning when the USD is strong, stocks tend to struggle. And when it’s weak, stocks remain strong. 

Take a look at this chart – it’s a simple price chart comparing the direction of the Dollar (DXY) in blue overlaid with the S&P 500 Index (SPX) in green. 

The dollar bottoms, reverses higher, and stocks begin to fall. The dollar peaks and begins to reverse lower, and stocks rise.

Can this correlation change? Sure, but do you want to bet that the correlation between the USD and stocks is going to somehow change tomorrow? 

I’d bet that the inverse relationship that exists between the USD and stocks continues.

Let’s zoom in on what the dollar is doing now.

Here is the US Dollar Index consolidating in what appears to be a classic continuation pattern, within an ongoing downtrend.

I’ve highlighted where DXY has found previous support around the $100-$101 area on three previous occasions. 

The question is: Will the USD once again find support here or will dollar weakness continue, as the pattern seems to suggest?

We can’t foretell the future, but with the dollar sliding well south of both its 50-day and 200-day moving averages, it’s hard to feel optimistic about a dollar reversal just yet.

How the US Dollar Index resolves this consolidation is important – I can’t stress how important it is!

What does a lower USD mean for the S&P 500, and stocks in general?

As long as the correlation between stocks and the dollar remains in play, a weaker dollar should remain a tailwind for stocks in the second half of 2023… 

But if the dollar begins to strengthen, stocks will likely come under pressure.

It’s not that complicated. 

Schedule an appointment today with me or one of our other experienced advisors who can help to guide you through the unpredictability of the markets every step of the way. We understand the importance of client-specific solutions, and we’re committed to helping you achieve your financial goals.

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