Posted on 05/20/2010 7:51:10 AM PDT by big black dog
It seems when the dollar is weak, the stock market rises and when the dollar is strong, it drops. Any reason for this?
Any stock is priced based on the expected future earnings. If a company has exposure (business) in other lands, those sales must be converted into dollars in order to price a stock.
The “value” of the earnings don’t change. (For example, an ounce of gold is still an ounce of gold. The number of dollars that it is worth will fluctuate—even though the physical “value” does not.) The exchange for the value does. If the euro tanks, it will take more euros to purchase the same value of goods and services priced in dollars. Therefore, the potential sales will drop.
If sales drop, revenues drop, and the forward looking value of the stock will drop.
Other things like unemployment, inventories, etc will all have an impact.
It can all be very complicated.
Personally, I buy shovels to bury my gold in holes around the property. The sad part is I forget where I bury it.
If you spend a few days trying to day trade you will find out how close to reality that statement is.
The market is crazy. It is best sometimes to take your best shot and hope for the best.
Where do you live, again? :-)
The entire market - stocks and precious metals - is basically stagnant, reflecting the world economy. The changes you see are predominantly a reflection in the strength of the dollar. When it gets stronger, you need fewer dollars to purchase either precious metals or stocks. When it gets weaker, you need more.
Most of what you see on the day-to-day balance is a reflection of the rise or fall of the dollar, not an inherent strength of any given item.
>> Any stock is priced based on the expected future earnings.
In theory, anyway. That would be the “present value of the income stream” valuation. In reality, the marketplace prices stocks according to a variety of rational and irrational criteria. Heck, often they’re just a medium for speculation — shares might as well be blackjack chips.
>> It can all be very complicated.
Amen, brother. And it’s not just math; an understanding of human nature is required. I can do math but human behavior baffles me.
>> The sad part is I forget where I bury it.
Send me your address, I’ll bring my shovel and help you look!
FRegards
well weaker dollar means our exports are cheaper that probably has something to do with it
A number of possible reasons:
1. A higher dollar makes US exports more expensive around the world. If most of US growth has been in the export sector as the domestic economy is stagnant then US stocks would fall.
2. A higher dollar makes US share prices more expensive and rates of returns lower to foreign buyer without further expected appreciation. [The return on a stock to a foreign owner is the dividend plus any appreciation of the dollar during the time.]
3. A higher dollar makes foreign assets, ie stocks, cheaper. American assets holder could view foreign stocks as relatively more attractive now.
4. A high dollar might imply more money demand in the US or tighter monetary policy meaning deflation is around the corner. More economic stagnation is not good for the value of companies.
The two can be unrelated too. The higher dollar could be due to political uncertainty around the world while the lower stock market could be due to pricing in further Obama business mistreatment.
>> monkeys (with fat fingers)
Do monkeys HAVE fingers?
I’ll paws for a moment and ponder that deep thought.
No reason at all. The stock market rises and falls because it is controlled by monkeys using powerful computers.
I agree with that statement wholeheartedly. The market is heavily manipulated which is a good thing for the day trader. There is a sequence to their madness and once you have their MO, you can go with the flow and life can be good. There is no logical fundamental reason at this point only technical reasons IMHO.
Look for beat up stocks of well run companies.
Its a buy opportunity.
“There are, however, some pretty dumb *answers* to stock market questions drifting around out there. :-)”
You got that right...the “unexpected job report” might have something to do with a down market...
How many unexpected job reports have there been that didn’t affect the market? I remember a few negative job reports that actually caused an uptick. Today we closed the gap that was caused on 5-10-10 at the open. We came close yesterday and when we are that close it will usually close the gap the next day. Today was determined a down day at close yesterday before job reports even came out.
Nah ! It's trading the VXX !
How many unexpected job reports have there been that didn’t affect the market?”
None.
Investors buy and sell based on what they think will happen in the future, not what happens at the current moment. Does that help? Probably not. Investors are hard to figure out.
They are all Unexpected. I can’t give you specific instances but there have been quite a few negative job reports that saw the market have an up day.
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