- The rally in US stocks could be stunted by a rebounding dollar, according to a market technician.
- “We don’t think there’s a ton of downside for the dollar, and if there’s not a lot of downside for the dollar, it’s tough to see a lot of upside for equities,” Jonathan Krinksky said.
- US stocks and the dollar have an inverse relationship, so a stronger dollar tends to push stocks down.
The rally in US stocks could be nearing an end given the dollar is showing signs of a recovery from its recent four-month slump, according to Jonathan Krinksky.
“You really need to see a weaker dollar to continue this equity rally,” said Krinsky, managing director and chief market technician at stock brokerage BTIG, in a CNBC interview on Wednesday.
“We don’t think there’s a ton of downside for the dollar, and if there’s not a lot of downside for the dollar, it’s tough to see a lot of upside for equities,” he added.
The dollar tends to have an inverse relationship with US stocks. So, when the US currency rises, equities usually fall. That’s because a higher greenback squeezes companies’ overseas income as they are forced to convert weaker foreign currencies into a stronger dollar.
The US currency, which hit a nine-month low earlier in February, has since rebounded by more than 2% as the Federal Reserve stands ready to push for higher interest rates to combat inflation.
Rising interest rates tend to support a currency’s value because they attract foreign investors seeking higher yields.
At last check on Thursday, the US Dollar Index fell 0.67% to $102.72.
Meanwhile, stocks have rallied this year so far as inflation showed signs of cooling. Year-to-date, mega-cap tech giants like Amazon, Microsoft, and Alphabet are up 20%, 13%, and 8% year-to-date, respectively.
Krinsky’s view contrasts with that of market experts who think stocks still have room to continue its rally after Fed Chairman Jerome Powell’s recent encouraging comments on inflation sparked optimism that an end is in sight to the central bank’s rate increases.