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The US dollar index (DX-Y.NYB) moved lower, coming off its recent two-year high on Monday after the Washington Post reported that President-elect Donald Trump’s tariff plans could be less broad than initially thought.
Trump quickly responded on Truth Social, saying the report was "wrong." The US dollar index (DX-Y.NYB), which had been down as much as 1%, pared some losses and was off about 0.5% at last check. Both the S&P 500 (^GSPC) and the Nasdaq Composite (^IXIC) stock indexes were up more than 1%.
In a note to clients late Sunday, Morgan Stanley chief investment officer Mike Wilson wrote that the dollar index has risen to a level that "has the potential to weigh on equities with more significant foreign sales exposure." As noted last week, that group includes many of the key companies driving the lion’s share of S&P 500 earnings growth.
This, combined with the recent rise in the 10-year Treasury yield (^TNX) to 4.6%, could be a headwind for the broadening of the stock market rally beyond just large-cap tech stocks, per Wilson.
Should the rise in rates and the dollar persist, Wilson argues that "2025 could be a year of two halves, with the first half being more challenged before potential equity-market-friendly policy changes (tax cut extensions/expansions, government efficiency reduces the term premium, etc.) can have their desired effects."
