Since 1985, the US Dollar has spent alternating periods, each of similar duration, rising and falling in value, with each stint lasting 516 days on average. During those periods some assets have shown strong performance tendencies in rising dollar environments, while others have fared better in falling dollar environments. By paying attention to the changing strength of the US Dollar, we can have a reasonable idea of which assets are likely to be better holdings for our portfolios.

Rising Dollar Assets

  1. US Equities tend to outperform non-US Equities when $ is strong
  2. Small and Midcap Stocks – Outperform Large Caps in strong $ markets
  3. Growth Stocks – consistently better than Value stocks when $ is strong

Falling Dollar Assets

  1. Non-US Equities – Positive absolute returns when dollar is falling
  2. Commodities – Positive returns when dollar is falling
  3. Gold – Positive returns when $ is falling

International Currencies – Greater positive returns when the $ is falling.

Note that the dotted green line – the 50-day moving average — is above the red line, which is the 200 day moving average. Also note that the 200-day moving average — which tells us the trend of the US Dollar — is up.  SO… We can look at the Rising Dollar Assets section above, and we’ll note that US equities, Small and Midcap stocks, and Growth Stocks are expected (based on history) to do better than the Falling Dollar Assets – such as Non-US Equities, Commodities, Gold, and International Currencies. And that is (mostly) what is actually happening. Gold seems to be recently going its own way, but the rest of the generalizations are holding true. Mid-caps are the strongest area of the US Markets, and Growth Stocks are out-performing Value Stocks. Non-US stocks and Commodities are mostly under-performing.

Keep these generalizations in mind, and when you hear the financial commentators mention that the US Dollar is weak or strong, you’ll likely have a reasonable idea which assets you want to hold in your portfolios.

Market Minute – Bears Retreating?

We’re seeing more portfolio managers adding stocks to their portfolios – indicating many of them feel that we’re likely to see the bulls take over. After all, the recent eight weeks have shown a bullish-looking market. On the other hand, many of those stock additions to people’s portfolios have been to defensive stocks – in the areas of Utilities, Consumer Durables (like toothpaste that people will buy no matter what the economy looks like), and Healthcare. So overall it appears that portfolio-managers are hedging their bets. The long-term is still down, but there certainly appear to be glimpses of a light at the end of this tunnel. We are also hedging – and have our fingers crossed.

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
www.denkinvest.com

This weekly article reflects news, commentary, opinions, viewpoints, analyses and other information developed by Denk Strategic Wealth Partners and/or select but unaffiliated third parties. DSWP provides Market Information for illustrative and informational purposes only. If you wish to receive this weekly commentary by email please contact us at 602-252-8700 or by e-mail at lindaw@denkinvest.com. If you are receiving this commentary via email and would prefer not to please let us know either by email or phone.

Ronald Denk is an Advisory Representative offering services through Denk Strategic Wealth Partners, A Registered Investment Advisor. He is also a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation. Information in this commentary is the sole opinion of Denk Strategic Wealth Partners. Past performance is no guarantee of future returns. All market related investments involve various types of risk, which include but are not restricted to, credit risk, interest rate risk, volatility, going concern risk, and market risk.

The Update provides information of a general nature regarding legislative or other developments. None of the information contained herein is intended as legal advice or opinions relative to specific matters, facts, situations or issues. Additional facts, information or future developments may affect the subjects addressed in this document. You should consult with an attorney, accountant or DSWP planner about your particular circumstances before acting on any of this information because it may not be applicable to your situation.

Lincoln Financial Securities and Denk Strategic Wealth Partners and their representatives do not offer tax advice. Please see your tax professional regarding your individual needs.

*The indices are representative of domestic markets and include the average performance of groups of widely held common stocks. Individuals cannot invest directly in any index and unlike investments, indices do not incur management fees, charges, or expenses, therefore specific index returns will be higher. Past performance is not indicative of future results.

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