This could be one of the 'most important developments' in the market this year

As the U.S. dollar index rises to its highest level in nearly nine months, stocks could soon feel the pain.

"As the Federal Reserve gets closer to December, you're going to continue the dollar notch up in value," Chad Morganlander, portfolio manager at Stifel Nicolaus, said Tuesday on CNBC's "Trading Nation," adding that he does see the central bank raising rates in December, and again late next year.

Such moves could push the dollar about 3 to 6 percent higher, Morganlander said, and that could apply pressure to the overall financial system.

On Tuesday, the dollar index, which tracks the value of the dollar as compared to a basket of major currencies composed largely of the euro, rose above 99 — the first time it has been above that level since February 2.

The dollar index on Tuesday rose to its highest level in nearly nine months before dipping in trading throughout the day. The index, which measures the value of the greenback relative to major currencies like the euro and the Japanese yen, has rallied over 3 percent this month.

As the dollar rises further, "financial conditions will start to actually tighten, and we believe that the equity markets could have relative sub-par kind of performance in 2017, along the lines of 4 to 6 percent," Morganlander projected, adding that such a pullback could potentially "unhinge" the financial system.

In a note published Wednesday morning, Miller Tabak equity strategist Matt Maley wrote that although a dollar index break above 100 "is not our base-case scenario," such an event "will be one of the most important developments of the year."

The dollar index has not hit 100 since last December, and its 52-week high shortly before that was 100.20 in late November.

While Maley thinks that such an event is unlikely, he wrote that "if it can break above that level in a meaningful fashion, it is going to be INCREDIBLY bullish for the dollar on a [sic] techncial basis...and have important implications for many different markets...and for forward earnings for many multi-national companies," Maley wrote.

Of course, as the value of the dollar rises, fortunes tend to fall for companies that sell a great deal of goods overseas, as they must either force foreign customers to pay more, or must bring home the same amount of now-less-valuable foreign currency.

"We actually think that this is going to continue to put pressure on earnings, and if that continues I think at some point we are going to have to reconsider the valuations that are put on this market," Gina Sanchez, CEO of Chantico Global, said Tuesday on "Trading Nation."

"Valuations are really priced for a much more optimistic outlook, and if we continue to slug along at earnings that are very pressured not only by energy, but also by the dollar, we think that could cause the market to reevaluate those multiples and we think that could take some real froth off the market," Sanchez said.


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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.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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