Dollar’s Strength Has Not Derailed U.S. Bull Market In Stocks
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View from the Observation Deck

  1. We last featured the U.S. dollar in a post on December 30, 2011 (see archive). We noted at the time that the S&P 500 appeared to perform quite well while the dollar was weakening relative to a basket of major foreign currencies.
  2. While weakness in the U.S. dollar can have a positive impact on U.S. exports, a strong dollar has historically signified sound monetary policy and economic growth. Two things that would potentially attract investment capital to the U.S.
  3. For the 24-month period ended 4/15/13 (see chart), the U.S. dollar appreciated 10.1% against a basket of major currencies, as measured by the U.S. Dollar Index (DXY). This despite the downgrade of the U.S.'s sovereign debt rating on 8/5/11. 
  4. U.S. GDP growth has averaged 1.9% (past 7 quarters thru 12/31/12) over that period, according to data from the Bureau of Economic Analysis.
  5. The issue of sound monetary policy, however, is up for debate, in our opinion. History may end up being the judge. 
  6. The S&P 500 posted a cumulative total return of 22.95%, or 10.87% on an annualized basis, over that same 24-month span. 
  7. Net inflows into U.S. Equity funds (includes mutual funds, ETFs and closed-end funds) totaled $77.3 billion in Q1'13, up from $29.2 billion in Q1'12, according to data from Strategic Insight.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The U.S. Dollar Index (DXY) is an average of exchange rates between the USD and major world currencies. The S&P 500 is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance. Past performance is no guarantee of future results.

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Posted on Tuesday, April 16, 2013 @ 4:06 PM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.