Here’s What A Weaker Dollar Means For U.S. Stocks

April 27, 2017 6:26am NYSE:UUP

shadow-dollar-sign-1239535-638x363

From Bryce Coward, CFA: Since the beginning of 2017, the US dollar has struggled against nearly every major currency, calling into question the idea that the US dollar is still in a bull market.


Indeed, since the dollar made its cyclical high on the first day of 2017 trading, it has put in a series of lower highs and lower lows no matter how you measure it (chart 1). The possible trend change is no doubt aided by President Trump and several of his cabinet members making public statements to the effect that the US dollar is “too strong”. We’d also remind readers that any sort of deficit spending is likely to be financed from foreign sources, since US domestic savings is already at a low level. Such a scenario would add to the pressure on the dollar (chart 2).

So the question now becomes, if the USD bull market is over, what does that mean for my portfolio? The answer to this question is relatively simple. When the USD rises, US stocks tend to outperform foreign stocks in USD terms. When the USD falls, US stocks tend to underperform foreign stocks in USD terms.

Therefore, if we have indeed seen a peak in the US dollar –- as the charts would suggest and the US government would like to affect –- we’ve likely just seen the beginning of foreign equities outperforming US equities after a decade of the opposite occurring.

The PowerShares DB US Dollar Index Bullish (NYSE:UUP) was unchanged in premarket trading Thursday. Year-to-date, UUP has declined -3.40%, versus a 6.65% rise in the benchmark S&P 500 index during the same period.

UUP currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #11 of 24 ETFs in the Currency ETFs category.


Sign up for reports from Knowledge Leaders Capital.

This article is brought to you courtesy of Knowledge Leaders Capital.


Read Next


Recommended for You

Explore More from ETFDailyNews.com

Free Daily Newsletter

Get daily ETF insights from our market experts. Never miss another important market development again!

ETFDailyNews.com respects your privacy.

Best ETFs

We've rated and ranked nearly 2,000 ETFs and ETNs using our proprietary SMART Grade system.

View Top Rated ETFs

Best Categories

We've ranked dozens of ETF categories based on relative performance.

Best ETF Categories