What Has Worked (And What Hasn’t) With A Stronger Dollar

Regardless of the series you use, the USD seems to have broken out of a 20-month trading range and is trading at the highest level in well over a decade. Over the past 10-years, there have been some strong equity sector relationships with the the USD. Since this summer, some of these relationships have moved in an inverse direction to historical correlations. This means that either previous relationships are no longer valid or we should expect to see some ‘reversion to the mean’ in the near future.
As we like to say our crystal ball is no better than anyone else’s, so we present these charts with minimal commentary regarding the future direction of the market. As regular readers know we like to break the equity market into 5 baskets: early cyclicals, late cyclicals, hyper cyclicals, growth counter-cyclicals, interest rate sensitive counter-cyclicals.
The most tightly correlated basket to the USD over the past decade has clearly been late cyclicals (energy, industrials, and materials). This basket has underperformed the overall GKCI DM equity index by nearly 27% over the past decade. It is noteworthy that this group has basically market-performed since the election while the dollar has gained by roughly 3%.

This post was published at Zero Hedge on Nov 25, 2016.