U.S. Stocks and the Dollar Before and After Lehman

November 12, 2008

From the peak early in 4Q07, the Dow Jones Industrial Average and the Nasdaq have lost 41.5% and 47.6% of their values. Over that period, the trade-weighted dollar rose 6.0%. In the first 11 months of that period up to the failure of Lehman, the DJIA and Nasdaq fell by 19.4% and 20.9%, or at an average rate of roughly 2.0% per month. The trade-weighted dollar dipped 3.3% or at an insignificant pace of 0.3% per month. During the two months since Lehman, The DJIA plunged 27.5%, or 14.8% per month, and the Nasdaq slumped 33.7%, or 18.6% per month. The trade-weighted dollar recovered 9.6% or 4.7% per annum. A strengthening dollar will come back to hurt U.S. exporters. And make no mistake, the permitted failure of Lehman Brothers was the pivotal moment in the banking crisis, the U.S. business cycle, and the 2008 presidential and congressional election.



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