NEW YORK — Since when does the stock market take its cues from the market for silver, oil and pork bellies? When it's really the dollar that's driving the action.
The stock market rally, which began in August, relied on stronger earnings, rising commodity prices and a weak dollar, said Andrew Wilkinson, senior market analyst at Interactive Brokers. But prices for commodities have dropped by 10 percent this month, and swung wildly over the past week. Oil, for example, was nearly $114 a barrel at the end of April. On Tuesday oil settled at $104, fell, rose and fell again, to close at $99.65 on Friday.
Falling commodity prices are widely blamed for driving down stocks. The Standard & Poor's 500 index has lost 1.9 percent so far in May. Other indexes are down more than 1.5 percent for the month.
It's not simply a case of investors selling because they believe declining oil prices are a sign that the economy is losing strength. Rather, since commodities are mainly traded in dollars, it's the dollar's recent rise that is largely responsible for pushing down commodity prices. If the dollar gains strength against other currencies, it takes fewer dollars to buy the same barrel of oil.
"Suddenly, the dollar is no longer the whipping boy," Wilkinson said. "And if the dollar is no longer the whipping boy, you can no longer count on a commodity-driven rebound to push up the stock market."
Worries over Europe pushed the dollar up nearly 1 percent on Friday and erased the week's gains in the stock market.
The Dow Jones industrial average lost 100.17 points, or 0.8 percent, to close at 12,595.75. The S&P 500 fell 10.88, or 0.8 percent, to 1,337.77. The Nasdaq lost 34.57, or 1.2 percent, to 2,828.47. The slide turned the Dow and S&P lower for the week.
Financial stocks fared the worst in the past week, followed by material and energy companies. Both Bank of America Corp. and JPMorgan Chase & Co. dropped 2 percent on Friday.
Companies in the energy sector fell the most in May. Exxon Mobil Corp. lost 8 percent so far this month.
The Dow fell 0.3 percent over the week and 1.7 percent for the month. The Nasdaq was flat for the week and is down 1.6 percent for the month.
The Russell 2000, an index of small companies, ended the week up nearly 0.3 percent, but is down the most so far this month, declining 3.42 percent.
In addition to the dollar's rising value, several other forces have led to the recent rout in commodity prices. A requirement that traders back their bets on silver with more cash spurred a sell-off in metals, which some traders say cascaded into other markets. Reports over the past week showing weaker demand and rising supplies for both crude oil and gas have pushed down energy prices. U.S. oil inventories have climbed to their highest level since May 2009.