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Don't Fall For the Dollar-Stocks Coupling Axiom: Strategist

Markets have been reacting to the U.S. dollar’s movements—when the greenback is weaker, stocks go higher. Will this inverse trend hold going forward and what does it mean for markets? Andrew Kanaly, chairman of Kanaly Trust Company, and Tommy Williams, president of Williams Financial Advisors, discussed their outlooks.

“I think that to try to draw conclusions based on those old coupling axioms is false,” Williams told CNBC.

“Remember that the dollar is a function of strength against other currencies; we are the strongest economy in the world and the other economies can’t exist or thrive without us.”

In the meantime, Kanaly said investors should also be careful not to associate the higher dollar with the rising stock market.

“Don't you believe it: it’s all part of the carry trade and when it comes unwound, it will come unwound with a vengeance,” said Kanaly.

“You’ve seen the dollar start to bottom out and gold starting to peak and the stock market is looking pretty toppy too.”

Kanaly said we are currently in a "deflation hedge" and have “serious dollar destruction” in the form of loans being written off and real estate being written down.

“We’ve had a little bump in the road on the way of inflation, which isn’t going to happen until loan demand picks up,” he said.

Kanaly Likes:

S&P Technology

S&P Materials

S&P Energy

Williams Likes:

S&P Consumer Discretionary

S&P Technology

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Disclosures:

No immediate information was available for Kanaly or Williams.

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