Potential for Longer-Term Dollar Rally Could Cause Small Caps to Under-Perform

In the chart below the ratio of the R2K vs. SPX is presented in black.

As the line increases small caps outperform large caps and vice versa.

This ratio is plotted against the USD in red, which is inverted.

Together, they show that the broad trend of small cap outperformance since 2002 has coincided with the secular decline in the value of the USD

Is this coincidental correlation or causation?

If the USD begins a sustained rally, might this result in small caps under-performing large in the decade to come?

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