MW It's rare for stocks and the dollar to fall together. History says tread carefully.

By William Watts

Equity investors may want to wait for a 'more favorable entry point': SentimenTrader

Here's something investors don't see very often: The stock market and the U.S. dollar are retreating side by side, and history, while limited, suggests investors should stay on their toes.

The three-month rate of change for the S&P 500 SPX has been 7.96% over the past three months, noted Dean Christians, senior research analyst at SentimenTrader, in a Monday note. The rate of decline for the ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was 8.99%.

"Over the past three months, the S&P 500 and the U.S. dollar have declined in unison, a rare and notable development given that the dollar typically strengthens during risk-off periods when equity markets retreat," Christians said.

The simultaneous fall has sparked speculation that global investors are shunning U.S. assets in response to the Trump administration's tariff policies, a development that some observers have argued could point to the dollar eventually losing its status as the global reserve currency.

See: Collapse of the dollar shows 'the biggest damage right now is to the U.S. brand'

Christians, however, argued that while concurrent falls for the dollar and S&P 500 are rare, the underlying dynamics appear "more routine." Past episodes have tended to occur during periods of uncertainty, "often pointing to market stress or geopolitical tensions that trigger capital repatriation, not the dollar's demise," he wrote.

This time around, investors are likely witnessing a repatriation flow, with foreign investors seeking the safety of their home countries, he said. Tariffs have served as the trigger, with rising trade tensions injecting uncertainty into global markets.

SentimenTrader looked at the performance of both the dollar and the S&P 500 after a simultaneous fall of 7% or more over three months. They emphasized, however, that the study served more as a market observation than a direct trading signal, offering historical context for the current market environment.

They found eight instances going back to 1973.

In the six months that followed, the dollar showed no consistent pattern, "behaving much like a coin toss," Christians said. A year later, however, it was higher in 75% of the cases.

As for stocks (see chart and table above), the S&P 500 tended to see a modest rally during the first three months, with momentum soon fading and the index advancing in just half of the instances between the fourth month and the six month. In six of the eight parallels, the S&P 500 went on to post a lower low, with only 1978 and 1998 coinciding with a market bottom, SentimenTrader found.

"With six of the last eight instances resulting in a lower low for the S&P 500, maintaining a cautious stance and waiting for a more favorable entry point appears prudent," Christians said.

-William Watts

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April 14, 2025 16:02 ET (20:02 GMT)

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