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What goes around comes around: a short note on Dollar risk

Market Commentary

17 January 2020

The United States (US) stock market is up nearly 500% since the 2008/2009 financial crisis, including dividends. No other market in the world has done better. US high yield and leveraged loan markets have also done well. The US dollar buys more than 40% more EURs today than in 2008 and about 50% more EM FX. The strong Dollar performance over the last decade can be attributed to flows from other parts of the world into US stock and credit markets. Foreign investors bought Dollars in order to buy these assets and they have benefitted enormously from strong returns as well as currency upside. US markets are continuing to perform well at the start of 2020, but valuations are frothy, positioning is heavy and, while the US economy does not appear to be on the brink of recession it is nevertheless steadily losing momentum. At times such as these, it is prudent to consider what might happen if and when the tide turns for US markets.

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