While the inverse relationship between the dollar and stocks is well documented, the recent intraday movements of the two assets takes it to another level. The chart below shows the intraday chart of the S&P 500 over the last two days compared to the US Dollar Index on an inverse scale. In other words, a rising red line indicates dollar weakness while a falling red line indicates dollar strength. As shown in the chart, since the Fed's rate announcement yesterday, the dollar's strength has been in exact lockstep with the weakness in equities. Over the last two trading days, the S&P 500's correlation to the US dollar index has been -0.97. You can't get much more negatively correlated than that!
Remember when you do price correlations, you want to look at the price changes -- not at the two prices.
Posted by: Eddy Elfenbein | September 24, 2009 at 02:08 PM
I understand the point you are trying to make & it does offer some insight.
However, your chart does suffer from scale dependency which can be overcome by using % change data.
I really enjoy your site.
Posted by: Andrew McCauley | September 24, 2009 at 06:34 PM
Great chart. It's an interesting connundrum when (like me), you are not earning dollars, but you want to invest in US companies. The dollar is going down (and concensus indicates it will keep going), and stocks (apart from past couple of days) are going up. So it's important to keep an eye on both movements.
Posted by: Senan | September 24, 2009 at 07:09 PM