Correlation Between the Dollar & S&P 500

You hear and read a lot these days about the market being up because the dollars value is down and vice versa.  Today let’s look into the correlation between the two, if any.  A picture first from the beginning of the year:

Correlation between the two measured over the approximate 6 months above:  From Wikipedia on Correlation: Several authors have offered guidelines for the interpretation of a correlation coefficient. Cohen (1988), has observed, however, that all such criteria are in some ways arbitrary and should not be observed too strictly. This is because the interpretation of a correlation coefficient depends on the context and purposes. A correlation of 0.9 may be very low if one is verifying a physical law using high-quality instruments, but may be regarded as very high in the social sciences where there may be a greater contribution from complicating factors.

Understanding the above as you can see from the first box the correlation between the movements of the dollar and the stock market is pretty large; at least over the last six months.

A longer term picture:

While the correlations may help you in your trading, the real question becomes; what has happened or will happen to your buying power, even if you have participated in the S&P advance. Will your profits buy more in terms of the U.S. Dollar, than this past March?  That of course depends greatly on what it is you choose when spending your profits and income. This is the inflation argument.  But what if deflation continues to take hold?  Suggest a strategy to you?