As of this week, the USD is breaking trend-line resistance dating back to the early part of the last decade at line (1) below. Ostensibly, this represents a trend change of some proportion – bull market beginnings, bear market endings.
The most obvious play off this trend change is the one that’s well under way – declining commodity prices along with basics, industrials, energy, etc. underpeforming. But those are the groups that benefitted the most from the dollar’s decline over the past decade. What was hurt the most?
Airlines are the first group that come to mind (with the impact from higher crude on input costs being the obvious culprit to under-performance). Sure enough, the ratio of the DJ Airlines Index vs. SPX has fallen materially over the past decade and has tracked the overall decline and ebbs and flows in the USD nearly perfectly over that time.
Question is…does that which under-performed for so long now turn into an out-performer?
The possiblity exists: the ratio of the DJ Airlines Index vs. SPX stood in the high teens vs. ~0.05 today – that’s a ~3x+ factor difference in potential performance gap that could be filled over time.