The US dollar and US stocks have both fallen for such a long time, which is quite unusual!

Recently, a rare and unsettling phenomenon has emerged in the global financial markets: both the US dollar and US stocks have experienced significant declines simultaneously, and this trend has persisted for some time.

According to a research report released by Goldman Sachs on the 19th, recent doubts about the sustainability of "exceptionalism" in the US economy have triggered one of the fastest corrections in the US stock market since the early 1970s.

Typically, stock market corrections are not uncommon, and the dollar often strengthens in the early stages of a stock market correction, as its important position in the global market usually attracts capital inflows during times of market instability. However, the simultaneous decline of the dollar this time is quite unusual, especially as the stock market is rapidly repricing.

Goldman Sachs believes that the main reasons for the simultaneous decline of the dollar and US stocks usually include three factors: changes in relative interest rates, downward adjustments to the growth outlook for the US economy, and market concerns about US credit. If concerns about the US economic outlook (and better overseas return prospects) persist, the dollar's weakness during stock market declines may continue in the short term.

Historical Comparison: What Factors Could Lead to a Simultaneous Decline of the Dollar and Stock Market?

In recent weeks, doubts about the sustained superiority of the US economy have accelerated the rapid correction of the US stock market. While stock market corrections are historically not uncommon, the simultaneous decline of the dollar is quite unusual, especially during rapid stock market repricing.

"Analyzing the ten fastest corrections in the US stock market since 1973, we find that the dollar usually strengthens in the initial decline phase, and the current situation is the only exception— the nominal trade-weighted dollar is declining simultaneously."

Goldman Sachs points out that over the past 25 years, there have been 33 periods when the S&P 500 index and the trade-weighted dollar declined simultaneously, but only 5 of these periods lasted at least two months. According to Goldman Sachs' research, this phenomenon is typically triggered by the following factors:

1. Changes in relative interest rates: In over 60% of cases, this phenomenon is caused by unfavorable shifts in relative interest rates for the dollar.
2. Downward adjustments to US growth outlook: The growth outlook for the US relative to other major economies is downgraded.
3. Concerns about US credit: Market concerns about US credit.

Goldman Sachs notes that on an intraday trading level, when the S&P 500 index closes down, there is a 40% probability that the dollar will weaken. However, instances where this dynamic persists for a long time are rare.

Goldman Sachs believes that the current situation may become the 6th long-lasting case. Given the degree of overweight in US assets, if concerns about the US outlook (and better overseas return prospects) persist, this period could even last longer.

Although the dollar is expected to strengthen later this year, Goldman Sachs also points out that the current downward trend may continue in the near term, especially considering the overweight position in US assets.

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