What Is The US Dollar Telling Us?

1) EARNINGS – Some have said that earnings are the mother's milk of the stock market. It only grows if it is being fed correctly, and good earnings are good food. If that’s true, then things are better than how people “feel.” Remember, though, “feelings” are a terrible way to analyze anything, but especially investment markets. Over the past 15 years, analysts have revised their EPS estimates down by an average of 2% between January and April. But 2026 is a different story.

2) DOLLAR – The US Dollar Index (DXY) is still trading at a pretty rich premium on most valuation metrics. Since there is no obvious catalyst that would argue for meaningful appreciation in the near term, it looks like the path of least resistance should be a weaker dollar. If that holds true, Gold, Bitcoin, and the S&P 500 could get a tailwind as the Dollar falls, given the -0.84, -0.95, and -0.96 respective inverse correlations to the Dollar. Additionally, Oil has a positive 0.91 correlation, further suggesting that April was the top in oil. In the chart below, the red line labeled "PPP Implied" shows the level the DXY Index (US Dollar Index) "should" be at, based on Purchasing Power Parity. PPP is an economic theory that compares the relative value of currencies by looking at what a similar basket of goods and services costs in different countries. It tries to measure how "expensive" or "cheap" one currency is compared to others after adjusting for price levels. Chart sources: Macrobond, GlobalData TS Lombard.

3) HISTORY – While we all know that history doesn’t necessarily repeat, it does often rhyme when it comes to investment markets, meaning that past return scenarios often show up in other periods. For example, the S&P 500 just posted a 9.8% 10-day rally. Bears say big moves like this are dangerous. History says otherwise. Looking at the top 20, 10-day rallies since 1950, the S&P was higher 12 months later 84% of the time, averaging an 18% gain. Moreover, the S&P 500 went from oversold to overbought in just 11 days, the second-fastest move ever recorded. Only the 1982 lows were faster, which tells us momentum is present. In the past 10 times, the market was higher six months later 90% of the time. The bottom line is that this kind of momentum doesn't tend to appear in bear market rallies. One more subtle signal: Thursday and Friday were both higher last week for the first time in nearly three months. When bears are in charge, late-week selling tends to dominate as nobody wants weekend risk. Last week seems to have flipped that script.