Is a Weak Dollar Good Or Bad For Equities?

Ted

FYI: The direction of the US dollar and its impact on stock prices has been an area of contentious debate over the years. On one side, you have the pro-dollar crowd, which says a strong dollar is good for the equity market as it shows confidence in the US economy and creates demand for assets denominated in dollars. On the other side of the argument, you have the anti-dollar crowd which argues that a weak dollar makes exports of US based multi-nationals more attractive on a global stage.
Looking at the recent interaction between the US dollar and equity prices, it would appear that the anti-dollar crowd seems to have the upper end of the argument. The chart below shows a comparison of the US Dollar Index and the S&P 500 over the last six months. As shown in the chart, as the US dollar was in a sideways range at the highs of its six-month range from November through January, US equities sold off hard. It wasn’t until early February when the dollar started to sell off that equities managed to rally.
Regards,
Ted
https://www.bespokepremium.com/think-big-blog/is-a-weak-dollar-good-or-bad-for-equities/

BobC

Weaker dollar definitely good for domestic exporters, for many international companies (except for those for whom a large part of their revenue comes from the U.S.) It is all part of an ongoing cycle. Chartists can pretty much 'prove' any point they like, but there are arguments to be made for both a rising and dropping dollar. For those of us who like foreign dividend stocks, a lower dollar is mostly positive.

hank

Bob got it right by rewording the term to stronger dollar. The article's flawed byline makes me suspicious of whatever conclusions it seeks to promote. Additionally, both six months and two years are very short time frames to consider in looking at the dollar (or any investment).

Dollar strength/weakness is meaningful only in comparison to other currencies. The dollar has been on a tear for multiple years, until very recently when it reversed.

It's a complicated equation when reaching for conclusions. U.S. exporters would like a weaker dollar. U.S. travelers abroad or those buying foreign automobiles might not. Yes - the immediate impact might be to increase equity values. On the other hand, businesses do not like serious inflation (a consequence of pronounced dollar weakness) which increases their costs of materials and labor. Gold bugs might like a weaker dollar - but the investment is so erratic in behavior that's not for certain.