US Stocks Still Benefiting from Euro Crisis; But Till When?

Since May 2009, there has been a steady fall in euro level; it’s being traded as low as 133.01. The sovereign debt of Portugal has downgraded from AA to AA- by most rating firms. New weaknesses for eurozone currencies are emerging every day and the Greek crisis still seems subtle. The Swedish Krona, the Swiss Franc, and the British Pound are all traded down one percent. Not only the eurozone, many economies in Europe are gradually flowing out since early Dec 2009. This, however, has helped US dollar and US stock to gain value.

The surge in stock value since Mar 2009 can be categorized under two different phases; this, however, wouldn’t be visible by glancing through charts as it’s closely connected to variation in currency rates. Between Mar and Dec 2009, US stock’s value augmented radically, a trend observed since early 2000s. And it perfectly makes sense. When a currency depreciates, an inverse result is seen in similar stock market cap, to maintain the actual value of company’s assets.

This was, however, the initial phase of the movement. Later, the capital that brought positive movements in the US flew Europe, which led many wind ups in dollar based assets.

Yet, the US stock market rally cannot be considered healthy. Statistics reveal very low volume is being traded these days. During market-low days, the trade volume was quite huge, while numbers fell considerably with the rally. And it’s worsening everyday. Market fundamentals consider this a negative trait.

Here is a quick read for precious metal investors – prices of gold, generally, moves simultaneously with euro rates. This trend can be true for oil as well; to a much less extent however.

World markets are clearly not in a good shape these days. Investors should bear in mind that if it breaks current low-levels, it will mark the beginning of yet another major economic downturn and this one could be worse than the recent one.