The Dollar’s Feeling Strong as an Ox

If this dollar’s a rockin’, don’t come a knockin’.

The greenback is on a big-time roll, with the benchmark U.S. Dollar Index ETF, the PowerShares DB US Dollar Bullish (UUP), up nearly 10.5% in 2015. During the past six months, the dollar is up 18% vs. a basket of rival foreign currencies. During the past 12 months, the dollar’s value has soared about 25% against the combined euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

If you’re going long in the U.S. dollar, then good job! You’ve made money, and you are probably going to keep making money, as the buck is likely destined to reach parity with the second-most-prominent currency in the world, the euro.

In fact, the dollar now is trading at 12-year highs vs. the euro. While that’s good for consumers who buy European goods, it’s not so good for U.S. companies that export to the Old World.

Because of the currency’s strength, the dollar is starting to hurt corporate bottom lines — and especially the bottom lines of multi-national companies that get a lot of their revenue from exports.

In fact, I think there is the potential for an earnings recession due to the rising value of the dollar, meaning we could see back-to-back quarters of weaker or negative earnings growth. This situation does not mean to expect a new bear market, but it does point to a correction in U.S. stocks.

This week, we saw the first rumblings of a correction, as the market reacted with a lot of volatility to the surge in the dollar and the growing likelihood of the first Fed rate hike in years.

Stocks now have dipped below their 50-day moving average. Though the S&P 500 Index remains well above long-term support at the 200-day moving average, there has been a decided drop in March that reflects growing fears that this six-year-old bull market is getting really tired.

The bottom line here is that as long as the dollar is feeling strong as an ox, the major market indices might just stay plowed for some time.