Support the Wall Street Examiner! Choose your level of support to receive a free proprietary report as my thanks. Click the button below to see your options. Become a Patron!

A shift away from RORO? – Sober Look

This is a syndicated repost courtesy of Sober Look. To view original, click here. Reposted with permission.

Something strange happened in the market today. The dollar (DXY) and the US equity indices traded lower – together.

Source: MarketWatch

Historically one would indeed expect a positive correlation between these markets. After all, a healthier US economy – at least in principle – should benefit both the US dollar and the stock market. And the reverse also holds true. But these are not normal times. Since the financial crisis, the correlation has been consistently negative, making today’s move unusual.

Correlation between the dollar (DXY) and the S&P500 (daily returns, rolling 90 day correlation)

That’s because markets switched into the “RORO” (risk on/risk off) mode after the Lehman collapse. And the dollar has clearly been viewed as a “safety asset” – an asset that rallies in a risk-off scenario (see discussion from 2009).

So does today’s bout of positive correlation point to signs of normalization? Only time will tell. But this relationship is important to watch, as it will signal any major regime changes in the market and a potential shift away from RORO.

From our sponsor:

Wall Street Examiner Disclosure: Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. No endorsement of such content is either expressed or implied by posting the content. All items published here are matters of information and opinion, and are neither intended as, nor should you construe it as, individual investment advice. Do your own due diligence when considering the offerings of information providers, or considering any investment.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.