Recently, I’ve been asked about how the dollar is impacting the market. As you know the dollar has been weak for some time, however; a recent Federal Reserve report helped boost the buck’s performance. According to the report the U.S. economy expanded at a modest to moderate pace in the month of May. The latest uptrend for the dollar could mean better domestic stock performance, but it’s too early to tell.
While the dollar’s most recent performance is great news, it’s not quite stable yet. So how will the fluctuating dollar impact your investments?
Today, let’s dig into how the current state of the dollar affects the markets.
Back in March I mentioned that an unstable dollar impacts everything from higher prices at the grocery store to rising gas prices. But don’t let that scare you away from investing; there is still money to be made if you broaden your market outlook.
Historically when the dollar is weak, domestic stocks underperform and prices of commodities and imported raw materials rise. But while domestic stocks struggle, International stocks have been performing stunningly well the past twelve months. And this is the silver lining, because your profit potential does not solely rely on dollar because there are many multinational players.
As I’ve mentioned before, this is called a “currency tailwind” meaning that the weak dollar boosts sales in foreign markets and profits for businesses there. Therefore, investing in companies with an international footprint can be very lucrative. Businesses with foreign headquarters tend to have lower operation costs and generate higher profits because of an international environment.
While in the near-term multi-national stocks continue to outperform domestic stocks. And I do expect the U.S. dollar to continue to rally. I will be monitoring this trend closely, because the tailwinds might change to favor domestic stocks again.