Re:Wherever oil goes, the stock market goes
by adventured on Monday February 15, 2016 @03:39PM
(#11105773)
This article is entirely wrong.
Wherever the dollar goes, stocks and oil go (in the opposite direction). They're both priced in dollars fundamentally.
The Fed ending QE mostly put a stop to the stock market moving higher, dramatically strengthened the dollar, and decimated the commodities market, devaluing the price of nearly all commodities including oil.
If the dollar goes up a lot, it becomes extremely difficult for the stock market to do anything but fall. Earnings growth has to outrun the gain in the dollar. During especially fast climbs in the dollar that becomes essentially impossible. To make things even worse, the S&P 500 companies are highly dependent on exports, they get to show off artificially high earnings courtesy of a too-cheap dollar; when that condition turns, the artificially high earnings go with it, which is exactly what we're witnessing now. Then doubling down on that effect, the stronger dollar is pulling trillions in capital back out of emerging markets, which has thrown most of them into recessions or worse, leaving the export heavy companies in an even worse bind.
Wherever the dollar goes, stocks and oil go (in the opposite direction). They're both priced in dollars fundamentally.
The Fed ending QE mostly put a stop to the stock market moving higher, dramatically strengthened the dollar, and decimated the commodities market, devaluing the price of nearly all commodities including oil.
If the dollar goes up a lot, it becomes extremely difficult for the stock market to do anything but fall. Earnings growth has to outrun the gain in the dollar. During especially fast climbs in the dollar that becomes essentially impossible. To make things even worse, the S&P 500 companies are highly dependent on exports, they get to show off artificially high earnings courtesy of a too-cheap dollar; when that condition turns, the artificially high earnings go with it, which is exactly what we're witnessing now. Then doubling down on that effect, the stronger dollar is pulling trillions in capital back out of emerging markets, which has thrown most of them into recessions or worse, leaving the export heavy companies in an even worse bind.