As we settle into 2015, there’s a lot of data to tread through: despite a recent rally, oil prices are still down nearly 50% from 2014 highs, yields are at record lows and the dollar is rising. These data can be spun negatively or positively and ultimately, according to David Nelson, chief strategist at Belpointe Asset Management, make up a "wall of worry" that markets are struggling to mount.
“About 87% of all companies that have reported are pointing to a rising dollar,” as a reason to lower guidance, says Nelson. The rising dollar provides a “stomping ground for CEOs who are not executing.” Companies like Proctor & Gamble (PG), Apple (AAPL), Pfizer (PFE) and Google (GOOGL) have blamed lost profits on a strong dollar. FiREapps, an FX exposure firm, has estimated that the strengthening dollar could cost as much as $12 billion in losses for the fourth quarter of 2014.
“If you look at the breakout of the dollar which really happened around July or August of last year, it’s been a straight up moonshot since then, we’ve made maybe 1 to 2% tops in the S&P since that time,” says Nelson. “There must be some kind of correlation there. Something is going on.”
Since June 30, 2014, the Dollar Spot Index (DXY) is up around 17.5%. For the same period, the S&P has increased by around 3.5%.
Investor’s should start looking outside of the United States, says Nelson. Europe is just beginning its quantitative easing program, which means it might be time to invest in their markets. “Look back at [the U.S.] a few years ago. When we started our stimulus program, the fundamentals didn’t really support a bull market and yet we rose,” he points out. Nelson recommends playing currency hedged ETFs like DXGE, a WisdomTree German equity fund.
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