You need a PLUS account to view this content. Try one month of PLUS for FREE.
Already have an account? log in
Global Stocks Haven’t Been This Out Of Sync Since The 1990s
Not since the 1990s have regional equities diverged to the extent they have today.
That was one, am
This about mag 7, currencies, and fiscal and monetary policy divergence. All of this is unwinding now. Row might not go up if US equities go way down, but it’s likely a bunch of laggards will catch up including foreign stocks even if they are not en fuego. Banks, real estate, small caps might like lower short term rates a lot. And health care may also join the list, since an economic slowdown won’t affect the sector as much. Absent a complete collapse this is healthy.
“While equity market corrections are historically not that uncommon, a coincident Dollar selloff is — especially when equities rapidly reprice. When set against the ten fastest US equity market corrections since 1973, the current one has been unique in its correlation with the Dollar. Intuitively, a rapid correction implies a sudden and unexpected shift in the outlook that can often spill over into broader financial stability concerns—a backdrop that tends to support the Dollar given its global role in markets. Indeed, we find that the Dollar typically strengthened over the initial drawdown of each correction, with the exception of the current episode — the only incidence of a simultaneous selloff in the nominal trade-weighted Dollar.” — Karen Reichgott Fishman and Lexi Kanter, Goldman”
(Perhaps) it IS different this time – while many still cling to the archaic belief that corporate earnings drive stock prices, it has become increasingly obvious that flows from board rooms augmented to a lesser extent by algos and levered speculators along with retail rat packs now determine the short and medium-term trajectory of equity prices. Since 2009 it has been flows not fundamentals that drive share prices.
Through that prism the concurrent weakness in stocks and the dollar are not surprising. Foreign money helped support US stocks and bonds. Now it is getting withdrawn, along with some domestic allocations. So, US stocks are being sold and the dollar proceeds converted and moved into foreign markets. I’d say it is obvious rather than surprising, but what do I know?