The US dollar is currently standing at a precarious threshold. The currency is constantly being dubbed volatile, with its foes hammering USD from all sides and frontiers. As the multi-polar currency agenda takes over the world, the US dollar’s positioning is being heavily questioned.
However, it might not all be bad, as new analysis shows how a weak US dollar might be good for US stocks in the long run.
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US Dollar and US Stocks: The Invisible Connection
Per a recent post uploaded by Game of Trades, the portal shared how two of the major global indices are declining, which may impact US stocks in the long haul. The portal outlined how the weak US dollar might prove bullish for US stocks, as a weak USD tends to push up companies’ earnings.
While elaborating on the process, the portal shared that a fragile US dollar often makes foreign revenues look big. About 70% of S&P stocks consist of US dollars, and 30% consist of foreign investments. When USD weakens, foreign revenues start to appear big in USD, pushing up a company’s revenue.
“3/ About 70% of S&P 500 revenues come from the US. And the rest comes from abroad in foreign currencies. When USD weakens, foreign revenues look bigger in USD. So, a weakening dollar tends to push up company earnings. Therefore, almost every time the dollar drops significantly, US stocks rise.”
In simpler words, the phenomenon helps in increased competitiveness as a weaker dollar makes US exports cheaper for foreign buyers, thereby boosting the demand for goods significantly. This would bring in more revenue for sellers than usual, helping them make more money.
A weaker dollar also makes US assets look more lucrative for investment. At the same time, a volatile dollar increases the value of foreign revenues when they are converted into dollars. This phenomenon also helps in impacting stocks at a rapid pace.
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Oil Prices and Market Impact
The portal later shared an interesting analysis of how oil prices and stock markets are closely interconnected. Per Game of Trades, when oil prices fall, it lowers a business’s operating costs. This would roughly mean an enterprise can attract high-profit margins if its business costs are lower. This development also helps boost the S&P 500’s positioning.
Similarly, when oil prices plummet, the price of gasoline also falls. This would mean there is more money for consumers to invest in other assets, which in turn helps bolster the S&P 500 index.
“When oil prices fall, it lowers business operating costs. Lower costs = higher profit margins. Which helps boost S&P 500 company earnings. Falling oil prices also lower gasoline prices at the pump. So, lower oil prices not only help businesses. But also put more money into consumers’ pockets. Which contributes to increased S&P 500 revenues.”
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