This market has repeatedly resisted any and all efforts to sidetrack it. We haven’t had a meaningful pullback in the S&P 500 since late 2012. The Russell 2000 recently punched to new record highs with a near 3% gain — a move to record highs with an enthusiasm that hasn’t been seen since the height of the dot-com bubble.
The largely uninterrupted flow of cheap money stimulus by the major central banks has been the market’s primary driver. But the mechanism behind the action has been currency carry trades, where hedge-fund types have sold short the currencies of the most active central banks — mainly, the Federal Reserve and the Bank of Japan — and used the proceeds to buy risky assets like stocks, bonds, and commodities.
Throughout 2013, the most popular carry trade currency was the yen, which explained why the U.S. stock market closely tracked the value of the yen most days.
But 2014, on the other hand, looks like it could feature the rising popularity of the U.S. dollar as a carry trade currency, with policymakers at the Federal Reserve focused on keeping short-term interest rates near 0% for longer.
If so, investors will need to keep an eye on these three exchange-traded funds that should benefit from any consistent weakness in the greenback: