(Bloomberg) — The chief investment officer of Morgan Stanley Wealth Management has a warning for stock bulls: the structural forces weighing on the dollar are threatening to spread to US equities in turn.
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“Consider preparing for a US dollar regime shift,” cautioned Lisa Shalett. Deteriorating relations with China, the end of yield curve management in Japan and rising Bitcoin and commodity prices suggest the currency’s run “might be hitting its limit.”
“While correlation is not causation, the correlation of US dollar strength to P/E ratios is worth monitoring now that the greenback’s bull market cycle may be maturing,” she wrote in a note Monday.
According to Shalett, that dollar strength has been at the “heart of an easy money regime” in the US — by pushing down import-related inflation and pressuring energy prices lower — that has boosted the performance of the equity market of…
