On earnings for the S&P 500, about a third of the 40 percent or so derived overseas comes from Europe but some two-thirds originate in areas of the global economy that are growing faster than the eurozone and the UK. Furthermore, expectations for growth outside of Europe are still being revised up according to the latest from Consensus Economics Inc. On the face of it then, the news flow for the US equity market remains positive and, on that basis, valuations are attractive.

Yet Wall Street's thoughts might lie elsewhere - like with the deflationary impulse that the eurozone's sovereign debt crisis exports to the US via the exchange rate appreciation in the dollar. As the chart of the trade weighted indices shows, the dollar may not be near the level it reached in March 2009 but it has been working its way towards it. If you're a bear of the euro you're probably thinking that, with each step the dollar takes towards higher levels, the much less competitive dollar priced goods and services become, thus affecting S&P 500's earnings - domestic as well as overseas.

David Fuller's view I think this is an important point and one that I have mentioned in the Audios recently. The previously soft US Dollar Index was a bull point for America's export earners in 2H 2009 and 1Q 2010. Today it is more of a headwind.

During what I have previously described as a triple or even quadruple waterfall of events that have spooked investors - China's draining of liquidity to curb property speculation, the SEC's indictment of Goldman Sachs for "fraudulent misconduct", the more economically serious issue of Southern Europe's spiralling government bond yields and Wall Street's sudden and still mysterious meltdown on May 6th - investors have fled to gold and especially the highly liquid US dollar and Treasury market.

This is understandable and we have seen dollar strength during other selling squalls, not least in 3Q 2008. Sadly, however, the US economy no longer resembles Ronald Reagan's vision of a "Shining City Upon A Hill". Reading between the lines of the global sell-off in stock markets and industrial commodities, investors are becoming more cautious about the outlook for global GDP growth and corporate earnings in 2H 2010.

This has probably sidetracked most of the cyclical bull trends in equities and industrial commodities for a few months. The silver lining is that it is returning markets to buying ranges. Currently, we have a short-term oversold condition but this is unlikely to support more than temporary rebounds over the near term.