Stocks to Watch as US Dollar Weakens
The weakening of the US dollar is good news for the stock market and for most US companies that receive a large portion of their income from overseas.
Recently, everything has been working against the US dollar.
Bond yields have fallen as inflation rates have dropped, and the fixed-income market expects the Federal Reserve to stop raising interest rates as early as this summer due to the slowing economy.
The rebound in the stock market also indicates that investors' worries have decreased, reducing demand for the US dollar as a safe haven.
These factors have put pressure on the $USD (USDindex.FX)$, which has fallen by about 10% from its multi-year high reached at the end of September last year.
There is still a greater downside potential for the US dollar
The US dollar index is currently close to 100, which is a key support level, and buyers have bought in at this level several times over the past year.
John Kolovos, Chief Technical Strategist at Macro Risk Advisors, said that if these buyers do not appear this time, the US dollar index may lose support and could fall to around 95.
Michael Hartnett, Chief Investment Strategist at Bank of America, is even more pessimistic. He believes that with multiple negative factors accumulating, the US dollar has started its fourth bear market in 50 years and the $USD (USDindex.FX)$ could fall by as much as 20%.
According to a recent report by Michael Hartnett, the market is entering a new era filled with conflicts, geopolitical isolationism, populism, fiscal excess, state intervention, regulation, and redistribution.
These factors will lead to normalization of 3%-4% inflation rate and 3%-4% interest rates. ![]()
In the report, Hartnett listed six reasons for being bearish on the US dollar:
The skyrocketing US budget deficit: Over the past 12 months, the US federal deficit has reached $1.8 trillion, accounting for 6.5% of GDP.
The deadline for the US debt ceiling is approaching, and the US government may run out of cash before July 4th.
The probability of US debt defaults is rising: The 5-year credit default swap (CDS) is at 45 basis points, compared to 15 basis points in the same period last year.
The US banking crisis means that the US dollar's status as a "safe haven" is declining.
The idea of the "petro-yuan" is spreading rapidly as the conflict between Russia and Ukraine forces countries to use different currencies for transactions.
China and Japan are reducing their holdings of US Treasuries; foreigners hold $7.4 trillion of US Treasuries.
Meanwhile, UBS also released a report predicting that the long-term trend for the US dollar will continue to decline. The report states that the latest US inflation data is slightly lower than market expectations, and the US dollar is further softening relative to G10 currencies, indicating the long-term trend for the US dollar may continue to decline.
The report suggests that investors should consider selling the US dollar while they can.![]()
These stocks may benefit
This could be good news for the stock market.
A weaker US dollar means that when US companies convert overseas income back to US dollars, it will increase their profits. 60% of S&P 500 index component companies' revenue comes from overseas, so this is a positive factor for their profits.
According to Barron's statistics,Dow Jones market data shows that since 1985, in months when the US dollar fell, the S&P 500 index rose by an average of 1.3%, while when the US dollar index rose, the average increase in the S&P 500 index was only 0.2%.
Investors can pay attention to ETFs such as $SPDR® S&P 500 ETF (SPY.AU)$, $Vanguard S&P 500 ETF (VOO.US)$, $iShares S&P 500 ETF (IVV.AU)$, which track the S&P 500 index, whose daily trading volume exceeds $1 billion on average.
We have compiled a list of S&P 500 Index companies with a higher proportion of overseas income, including:
Among them, there are six semiconductor companies such as $Qualcomm (QCOM.US)$and $NVIDIA (NVDA.US)$. Since semiconductors are a cyclical industry, the industry's prosperity is the main reason for the fluctuations in stock prices. In a previous article "Missed the AI rally？Chip stock is on the rise" It shares the investment logic of the semiconductor sector.
As the world's largest chipmaker $Taiwan Semiconductor (TSM.US)$ stated in its latest financial report, the adjustment time for semiconductor inventory exceeds expectations and may continue until the third quarter of this year.![]()
The remaining four companies have a closer relationship with the US dollar index.![]()
Take $Philip Morris International (PM.US)$ as an example. As a tobacco company, 94.01% of the revenue comes from outside the United States, and the correlation between its revenue and overall economic demand is much lower.
According to price predictions from 12 analysts over the past three months, its current stock price still has a 21% upside potential from the average target price.
$Linde (LIN.US)$ is the world's largest industrial gas supplier, and 78.37% of its revenue comes from outside the United States. According to price predictions from 15 analysts over the past three months, its current stock price has a 10% upside potential from the average target price.
$MasterCard (MA.US)$ is a leading global payment company with over 67% of its revenue coming from overseas. According to price predictions from 19 analysts over the past three months, its current stock price still has a 13% upside potential from the average target price.
$Nike (NKE.US)$ is the world's leading sportswear company with the highest market share, and over 64.95% of its revenue comes from overseas. According to price predictions from 19 analysts over the past three months, its current stock price still has a 12% upside potential from the average target price.
Which stock do you like the most?Feel free to share your wonderful thoughts in the comments section.![]()
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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