In the recent past, both the S&P 500 and the USD (against other currencies) have appreciated a lot.

From what I understand, if USD goes up against other companies, the major companies of the S&P 500 suffer because many of them earn foreign revenue in foreign currencies.

So, the S&P500 and the USD should have an inverse relationship with each other. So how come both S&P 500 and the USD have risen so sharply this year?


2 Answers 2


You're doing the traditional mistake of people not familiar with Econometrics: You mistake correlation and causality.

You look at a change in the USD, assume it to be exogenous, and then predict an impact onto the S&P.

However, changes in the USD are not exogenous. For example, an increase in US productivity (compared to the productivity of firms in other countries) will both increase the S&P and valuate the USD.

For what you're trying to do, you need to separate different effects, which is virtually impossible - or look for random variation in the USD, of which I'm also unfamiliar with.


It really depends on the cause of the change in prices. In basic supply-demand analysis if you see Q going up you don't know whether to expect P to go up too or to fall-it depends on whether Q is changing because of S or D.

Here the key is who is pushing up demand for US stocks, Americans or foreigners. The stock market and other U.S. assets will do well while the dollar rises at the same time when there is a rush of capital into the U.S. this often happens during a "flight to safety" or famously during the "global savings glut" of the mid-2000s.

On the other hand, if for some reason Americans save more like maybe they set up personal retirement accounts and mandate saving in them, then that will push up the values of stocks (more demand) but some people will buy foreign assets, increasing the supply of dollars to foreigners and pushing down the value.


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