Stock indices have been running opposite the US dollar but that's neither guaranteed nor always true

Increasingly I'm seeing others puck up on the inverse correlation between stock indices and the US dollar. That doesn't make it wrong - I've been pounding on that inverse correlation for months. But let's realize it isn't always true. The US dollar led the stock markets down during 2007 as you can see on the weekly chart at bottom. More recently, there have been brief times when they haven't moved exactly opposite (top chart below), but they've generally moved that way. Let's take a moment though, to think why the dollar might drop AND equities drop, since that DID happen before. When investors outside the U.S. see the value of their U.S. holdings go down, they don't necessarily buy more - they may instead sell, to stop yet more losses.

Recently there have been heightened fears that the dollar may plunge to new lows. And it might, there's no guarantee it won't; especially with fiscal policymakers and decisionmalers who seem bent on doing all they can to devalue the dollar. I'm just pointing out that we cannot simply assume that busting the dollar down to new lows will help our stock markets. If it happens, it could cause investors holding our stocks in other currencies, to pull out their support in search of more rewarding investments.

The other alternative of the US dollar strengthening - it's almost difficult to think how it could, given the efforts underway to run the dollar printing presses with fiscal and debt/spending policies. Unless it's just a cyclic or wave function, probably accompanied or rather caused by investors becoming more risk averse and selling equities to raise more cash - could strengthen the dollar at least temporarily. Well - it isn't my goal here to really get into economics or fundamentals. My main message for investors and traders is, don't just take for granted that the inverse correlation will continue indefinitely or at all times. Any trend or tool only works until it doesn't, and some thoughts (even if not fully complete) about what's going on can remind us to avoid getting stuck in any assumptions.