The stock market rally was derailed in the third quarter in part due to movements of other asset classes, and the end of September could be a good time for investors to see how exposed they are to further shifts in those assets. Two of the markets that weighed on stocks were oil and currencies. The price of U.S. benchmark West Texas Intermediate crude jumped above $90 per barrel in the back half of September, up from around $70 at the start of July. Meanwhile, the dollar index — which tracks the greenback against a basket of currencies — hit its highest level of the year in the final week of the third quarter. .DXY 1Y mountain The dollar index hit new highs for 2023 in September. Both the dollar and oil could continue to climb as the market turns to October, even with growing concerns about the strength of the U.S. economy and uncertainty around a potential government shutdown. Energy outlook The rise in oil in the third quarter came as the U.S. economy continued to prove resilient and Saudi Arabia cut oil production . Those factors should continue into the fourth quarter, according to iShares, a family of exchange-traded funds managed by BlackRock. “The U.S. economy, while it might be slowing down, will not be falling into a recession … over the next 3 to 5 months. Over that period of time, we think the dynamics for the energy market look very positive, and the way to play it is actually in energy equities,” said Gargi Chaudhuri, Head of iShares Investment Strategy Americas. “Energy equities haven’t really kept up with the energy market rally,” she added. The latest iShares outlook highlighted the firm’s U.S. Energy ETF (IYE) as a way to play higher oil prices. The fund had a total return of more than 10% in the third quarter, but that still lagged the move in oil prices. IYE YTD mountain The IYE outperformed the S & P 500 in the third quarter, but increased less than oil prices. Other major funds in that category include the Energy Select Sector SPDR Fund (XLE) , the Vanguard Energy Index ETF (VDE) and the Fidelity MSCI Energy Index ETF (FENY) . The optimistic outlook for energy is shared by other Wall Street firms, including Morgan Stanley analyst Sasikanth Chilukuru, who said in a note to clients Thursday that “after modest underperformance in 1H and a decline in investor expectations, the sector’s outlook is compelling once again.” To be sure, a weakening global growth picture could keep oil prices from climbing above the $100 per barrel mark, but supply constraints could also keep prices elevated regardless. “It’s not just about the demand picture. It’s certainly about the supply and demand picture. If it was just about the demand picture I think we would have been a little bit more cautious,” iShares’ Chaudhuri said. The greenback In foreign exchange, the Federal Reserve’s plan to keep interest rates higher for longer is giving a boost to the U.S. dollar, which strengthened against global currencies. The dollar tends to perform well when real interest rates are higher in the U.S., and when global growth is struggling compared to the American economy. There are some funds on the market that bet on the dollar directly, including the Invesco DB US Dollar Index Bullish Fund (UUP) and the WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU) . But those funds may not be for everyone, said Todd Sohn, ETF strategist at Strategas. “Investing and trading is hard enough, with the direction of stocks and bonds. It’s already hard enough for the average person. … I just think that you already have enough on your hand with trying to figure out the direction of more important asset classes within a portfolio,” Sohn said. Investors can outsource currency market decisions in the form of managed futures ETFs, which have exposure to currency markets in addition to other asset classes. Those funds also offer the benefit of having little correlation to equity markets, giving portfolios more diversification. For example, the iMGP DBi Managed Futures Strategy ETF (DBMF) — which is designed to track the moves of hedge funds — rose more than 4% in the third quarter while traditional stock and bond funds mostly declined. DBMF 3M mountain Managed futures funds like DBMF outperformed traditional equity funds in the third quarter. “It’s dawning on people that this higher rates regime might not just be around for longer but could be around for decades, basically. And that is hugely problematic for the entire wealth management industry that is built around the idea that stocks and bonds hedge each other,” said Andrew Beer, managing member at DBi. The DBMF fund’s currency bets are limited to the moves of the euro and yen against the dollar, Beer said. “We like simple, and it turns out that adding more currencies doing what we do doesn’t help you over time. … The vast majority of time, these things — we say they move in clusters,” Beer said. Still, currency markets are unpredictable, and managed future ETFs do add some active management risk into a portfolio. “You’ve really got to know the strategy and the manager, whether it is active or following some sort of index,” Sohn said. Global stocks A stronger dollar can also have an impact on international stock funds or on areas of the U.S. stock market that are more reliant on foreign economies. For example, worries about the Chinese economy have appeared to weigh on tech giants like Apple and Nvidia at various times in recent months. “Certain sectors tend to be more exposed to foreign revenues, so a stronger dollar would be a headwind to some of those foreign revenues. … As the dollar rallied, tech valuations pulled back, tech stocks pulled back. So I think to an extent that is already priced in,” said Anastasia Amoroso, chief investment strategist at iCapital. One way to mitigate the impact of the dollar in your portfolio is to seek out funds that have currency hedges built in. For example, the iShares Currency Hedged MSCI Japan ETF (HEWJ) has outperformed its unhedged counterpart ( EWJ ) by roughly 20 percentage points this year, according to FactSet. Another way would be to look for funds that have minimal or no exposure to certain countries that may be more at risk from a rising dollar. “There’s definitely the need to look country by country in terms of fundamentals and how they’re impacted by the stronger dollar. I would say emerging market countries that have a current account deficit and a fiscal deficit, those would be the most vulnerable,” Amoroso said.