The dollar is a high-yield topic these days; both the media and market participants are focused on it's recent ascent and debating what the implications might be. The question on the minds of many: IS THE STRONG DOLLAR BAD FOR STOCKS?
Here's what we believe and why:
- We do not think the strong U.S. dollar will derail the bull market.
- The dollar itself is not a key driver of market performance; it is a symptom
The massive U.S. dollar rally has wide-ranging impacts. It hurts international stock returns generated in foreign currencies. It influences global trade and the flow of investment dollars. A strong dollar hurts corporate earnings by reducing revenue earned by U.S.-based multinationals overseas in foreign currencies. It even puts downward pressure on inflation and commodity prices (including oil) and can influence monetary policy, corporate profit margins, and consumer spending. These are important considerations, but the key question investors are asking is whether the strong dollar will derail the bull market. We don't think so, based on how stocks have done historically during strong dollar periods. But the dollar does have important implications for asset classes and sectors, as we discuss below......