When they sell they're wanting money, an equal amount of money to the stock they're selling. That should make the dollar go up by the amount the stock went down.

(I don't really believe this, because it clearly does not describe the chart, but it makes sense and I want to understand why it doesn't work like that.)

Because money is a notational bookkeeping exercise at this point in time and has been since the dollar went off the gold standard. It can't be affected by demand for things as small as stocks, but only its relative demand to other notational currencies.

The total US stock market cap is $45T[1] and M2 is $20T[2]. Are you sure currency prices can't be influenced by the stock market?

[1] https://www.statista.com/statistics/1277195/nyse-nasdaq-comp... [2] https://www.federalreserve.gov/releases/h6/current/default.h...

I think that just furthers the point- there isn't enough 'money' in M2 to 'pay' for all the stocks in the stock market. Yet there that value sits and real estate is another 20+ trillion in land value.

In other words the actual 'money' is a transactional grease for the wheels of commerce- notational/bookkeeping mechanism.

The sale of Apple (the largest value stock in America) as a whole probably couldn't be accomplished in cash only, but even if it was, it'd be mostly notational numbers in an account somewhere and wouldn't 'flood the market' with dollars and crash the value of the currency.

A change in preferences from holding dollar reserves to holding stocks could change the value of the USD, that's what I am saying.

Except that you've got a Federal Reserve actively ensuring that there aren't too many (or too few) dollars in circulation for the level of interest rate they want to maintain. They do it by buying and selling bonds rather than stocks, but the principle is the same. So we don't have to worry about shifts in portfolio preferences leading to an unexpected oversupply or undersupply of dollars

But more people wanting to hold AAPL instead of hold cash absolutely will reduce the amount of AAPL stock your $1k is able to buy, of course

Maintaining an interest rate isn't the same as maintaining a fixed rate of CPI growth, especially not in the short run.

Sure, but we're not talking about fixing the rate of CPI growth (stock prices aren't a constituent part of that and don't have a fixed relationship with it).

We're talking about the effect of wealth holders wanting more of their investments in stocks or more of them in cash on the USD. An increase in demand for the liquidity of currency holdings, or an increase in demand for stocks due to perceived improved returns could affect the dollar through knockon effects on availability of credit, but the interest rate for that credit is the price of the bit the Fed fixes.

Change in preferring the Yen or the Euro, maybe, but I've never read/seen anything that would reinforce the idea that the dollar would be weakened by preference for holding other assets whose values are ultimately figured by their worth _in dollars_.