Economic Review

6/14/2010

Can the World Cup actually have an effect on US Stocks? Here’s the wild and crazy scenario.

The chaotic state of affairs in the EURO Zone which caused a massive depreciation in the EURO currency managed to knock the steam out of US Stocks as the fear of contagion and general economic uncertainty sent bullish speculators dumping. The correlation of a weaker EURO to weaker US stocks has strengthened dramatically. This correlation was evident in the other direction as well. Over the past week the EURO managed to stage a small rally and the result was a strong US Stock market, with the Dow Jones bouncing some 400 points on the week.

So how does the World Cup fit into the picture? Well, if you watched any games over the weekend you would have seen the German team dismantle the Australian team, as their performance was impressive to say the least. Perhaps continued success of the world cup team of the EURO Zone’s core economy (Germany) may provide a spark to EURO Zone economic activity and hence continue to strengthen the EURO Currency. This in turn would reduce risk in the US Markets and potentially send stocks higher.

OK…this was basically a colorful write-up from the Market Doctor team who are avid fans of world cup soccer. A simpler scenario for the US Stock sector is that a stronger EURO at this juncture would most likely provide a spark to further US Stock gains as chaos from abroad would lessen and overall market risk would decline as well.

Stephan Kudyba (MBA, PhD) THE MARKET DOCTOR

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