Sam Stovall's Sector Watch October 9, 2007, 9:09PM EST

Do Stocks Dance to the Dollar's Tune?

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From Standard & Poor's Equity Research

S&P 500 Foreign Sales

Month-End Trade-Weighted U.S. Dollar

S&P Benchmark Correlations with the U.S. Dollar: 1990-2007

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One might think that dollar weakness usually coincided with falling interest rates, yet two of the five periods observed occurred during Fed rate-tightening cycles.

In conclusion, we think there are three conclusions that can be taken from this study:

1) Past performance is no guarantee of future results. The interrelationship of global economies and equity markets evolves continuously.

2) There are many factors that affect share prices. There was almost no correlation between the U.S. dollar and the S&P 500 from 1990 to 2007. In the long run, we recommend that investors focus more on a company's fundamental improvements than in trying to anticipate which will benefit from changes in the value of the dollar.

3) Should the dollar continue to weaken and history repeat itself, the greatest share-price opportunities may be found in the S&P 500 Energy, Utility, and Materials sectors.

Industry Momentum List Update

Here is this week's list of the industries in the S&P 1500 with Relative Strength Rankings of 5 (price performances in the past 12 months that were among the top 10% of subindustries in the S&P 1500), along with a stock with the highest S&P STARS (tie goes to the highest market value).

Subindustry	Company (Ticker)	S&P STARS Rank	Price (10/5/07)
Aluminum	Alcoa (AA)	3	$39
Auto Parts & Equipment	Johnson Controls (JCI)	3	$41
Commodity Chemicals	Lyondell Chemical (LYO)	3	$47
Computer Hardware	Apple Inc. (AAPL)	4	$161
Construction & Engineering	Jacobs Engineering Group (JEC)	5	$83
Construction & Farm Machinery	Trinity Industries (TRN)	5	$40
Diversified Metals & Mining	Freeport-McMoRan Copper (FCX)	3	$111
Fertilizers & Agr. Chem.	Monsanto (MON)	3	$87
Footwear	Nike (NKE)	4	$60
Industrial Gases	Air Products (APD)	3	$97
Internet Retail	Amazon.com (AMZN)	2	$93
Oil & Gas Equip. & Svcs.	Schlumberger (SLB)	5	$105
Steel	Nucor (NUE)	4	$58
Tires & Rubber	Goodyear Tire (GT)	3	$30

Source: Standard & Poor's Equity Research

Stovall is chief investment strategist for Standard & Poor's Equity Research Services .

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