×

This could be the secret driver of the stock market comeback

Investors who have made money in stocks recently should consider drafting a thank you note to Fed chair Janet Yellen, according to trader Boris Schlossberg. After all, her policies have weakened the dollar and consequently paved the way for stocks to rise, he said.

"What's interesting is that the dollar has weakened over the last two quarters, and stocks have rallied," the BK Asset Management strategist said Thursday on CNBC's "Power Lunch." "I don't think that's a coincidence."

Schlossberg said that by not raising rates, the Fed is consciously allowing the dollar to weaken, thus giving a competitive advantage to U.S. exporters who benefit from a weaker greenback, in turn strengthening U.S. equities.

The U.S. dollar index has fallen 4 percent this year, while stocks have rallied 4 percent.

"The reason why all of this is happening," Schlossberg said, "is because they really want to make sure that we do not tip over into any kind of a global financial panic."

The correlation between the U.S. dollar and the S&P 500 tends to be positive — likely because both should tend to rise as the American economic outlook improves. Yet since the start of 2016, the correlation has fallen off a cliff, a CNBC analysis of FactSet data shows.

"So before, the dollar used to rally with equities," said Schlossberg. "Now, [a] lower dollar actually means positive equities because the Fed changed the correlation."

Not all traders, however, believe that the Fed is solely responsible for the decline in the dollar.

"We see this recent drop as more of investors focusing on earnings and U.S. economic growth rather than the oil prices," S&P Investment Advisory's Erin Gibbs said Thursday.

Gibbs attributes the recent fluctuation in stocks to the sky-high valuations in equities and "unusually high volatility moves into Q1 earnings announcements."

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

Read more

Connect