The US dollar index has seen its best performance since October 2022, but some experts are drawing parallels between the current market conditions and the lead-up to the 1987 stock market crash. The dollar’s movements don’t seem to have a significant impact on the S&P 500’s earnings per share, according to Mark Hulbert. However, he notes that in extreme situations, a falling dollar could command investors’ attention.
The correlation between the dollar’s trailing-year rate of change and the subsequent growth rate of the S&P 500’s EPS is not stable. In some periods, such as the mid-1990s and before the 2008 global financial crisis, there was a strong positive correlation, while in others, like the 1980s and early 2000s, it was strongly negative.
Despite the lack of statistical basis for concluding that a falling dollar will be either good or bad for dollar-denominated investors, the current financial environment is concerning. The parallels with the weeks leading up to the 1987 crash are alarming, particularly given Trump’s aggressive push for lower interest rates and a weaker dollar. If interest rates are reduced significantly, it could push the dollar down further against foreign currencies, making risk assets more appealing.
While history can’t be guaranteed to repeat itself, the similarities between the current market conditions and the 1987 crash are unsettling. The question remains whether investors should take notice of a falling dollar in extreme situations.
Source: https://www.morningstar.com/news/marketwatch/20250802246/trump-and-the-dollar-are-doing-something-we-saw-just-before-the-october-1987-stock-market-crash