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Eddy Elfenbein submits: The U.S. dollar has been in freefall lately, but it seems to have little or no impact on the stock market’s rally. In fact, it seems to be helping.

I decided to do a little analysis and see how much the exchange rate, the dollar/euro in particular, impacts equity prices.

From the beginning of 1999 to the end of June, the euro and the stock market were traded on about 2100 days. On days when the euro rose against the dollar, the S&P 500 lost a combined 66%. Annualized, that works out to a loss of -22.88% a year. When the euro fell against the dollar, the S&P 500 gained an annualized 35.30%.

Here are the annualized rates for the S&P 500 sector groups:

.................................Euro Up....................Euro Down
Energy......................9.28%.......................17.58%
Discretionary............-28.57%.......................47.76%
Staples......................-5.07%.......................8.21%
Financials..................-27.26.......................51.23%
Healthcare.................-12.84%.......................17.39%
Industrials.................-21.50%.......................40.90%
Tech.........................-44.04%.......................69.80%
Materials.....................0.32%.......................16.17%
Telecom...................-24.73%.......................19.24%
Utilities......................-2.40%.......................7.43%

Editor: Movements in the Dollar-Euro exchange rate are investable via the CurrencyShares Euro Trust (FXE) and iPath EUR/USD Exchange Rate ETN (ERO). See the full listing of Currency ETFs and ETNs. Sector performance using Mr Elfenbein's classification is actionable via the following ETFs:

  • Vanguard Consumer Discretionary ETF (VCR)
  • Vanguard Consumer Staples ETF (VDC)
  • Vanguard Energy ETF (VDE)
  • Vanguard Financials ETF (VFH)
  • Vanguard Health Care ETF (VHT)
  • Vanguard Industrials ETF (VIS)
  • Vanguard Information Technology ETF (VGT)
  • Vanguard Materials ETF (VAW)
  • Vanguard Telecommunciation Services ETF (VOX)
  • Vanguard Utilities ETF (VPU)

See the full listing of Primary US Sector ETFs.

Source: The Dollar's Impact On Sectors And The Overall Market