The U.S. Dollar Index (DXY) Signal That Could Spell Trouble for S&P Stocks

The U.S. Dollar Index (DXY) just toppled $100 for the first time since last November, which could have a bearish effect on the S&P 500 Index (SPX)

Nov 15, 2016 at 2:06 PM
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The U.S. Dollar Index (DXY) has been booming in the wake of Donald Trump's surprising victory in the presidential race, as expectations rise that Trump will welcome in an era of increased infrastructure spending -- a theory that has had a positive effect on several other sectors, as well. Since the Nov. 8 close at 97.86, DXY is up 2.3%, with some speculating that the most actively traded global currency has replaced the CBOE Volatitility Index (VIX) as the market's "fear gauge." Nevertheless, DXY toppled the century mark yesterday for the first time this year, and last seen trading at $100.15.

The last time this occurred was on Nov. 27, 2015 -- the second of two occurrences in 2015 -- and has happened just 23 times going back to 1995. According to Schaeffer's Quantitative Analyst Chris Prybal, and per the chart below, the historical returns for S&P Index (SPX) in the wake of the signal could spell trouble for stocks in both short- and intermediate-term time frames.

Specifically, following the previous times the DXY has toppled the century mark in the past 21 years, the SPX has gone on to average a three-day loss of 0.17% -- which widens to 1.06% going out two months. Compare this to an anytime SPX return of 0.1% and 1.38% over the same time frames, respectively. What's more, the U.S. Dollar Index (DXY) signal may hint at a drop-off in stock market volatility -- as measured by the standard deviation.

SPX vs dollar index Nov 15

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