Economic Review

7/7/2010

Can an old correlation rekindle a US Stock rebound ?

The major US Stock Indexes have been in a three week slump registering losses in the area of about 9%. In fact, Stocks have had trouble posting noteworthy gains since reaching their highs back in May of this year. One of the factors that began to weigh down the major Indexes was the trouble brewing in Europe and the corresponding decline in the value of the EURO currency versus the US$.

Back in 2009, when US Equities posted exuberant gains, the correlation of note was the rising value of the Euro and falling US$ that helped propel stocks higher as analysts and traders focused on earnings by US multinationals being enhanced by a stronger Euro and the attractiveness of US goods abroad as their priced dropped in foreign currency terms.

The question now is that given the recent rally in the beleaguered EURO, which has tested the 1.2600 mark, will the old correlation of a higher EURO and higher US Stocks begin to reformulate? Tuesday’s trade showed signs of hope. Keep your eyes peeled because there’s a good chance the EURO has more to rise.

Stephan Kudyba (MBA, PhD) THE MARKET DOCTOR

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