NVIDIA Corporation (NASDAQ:NVDA)
The value of the United States dollar has been falling recently, which is positive news for both the stock market and businesses that derive a significant portion of their revenue from customers located in other countries.
Recent events have shown that everything is working against the dollar. Bond yields have decreased in tandem with the rate of inflation during the past few years. As the economy continues to show signs of weakness, the market for fixed-income securities appears to be predicting that the Federal Reserve will stop raising interest rates as soon as this summer. The rise in the stock market is more evidence that investors are becoming less anxious and have less requirement for the dollar as a safe haven. These factors have contributed to a decline in the value of the U.S. Dollar IndexDXY –0.17%, which has decreased by approximately 10% since reaching a multidecade high in late September.
There is additional room for the United States Dollar to decline. The value of the currency is currently quite close to 100, an important level of support at which purchasers have participated multiple times over the course of the past year. According to John Kolovos, chief technical strategist at Macro Risk Advisors, if those buyers don’t show up this time, the dollar could lose support, which could open the door to a decline to approximately 95. This scenario would be a result of the absence of those buyers.
If true, this would be favorable information for the stock market. Because of the decline in the value of the greenback, U.S.-based businesses’ revenue from sales made outside the country will result in a greater amount of dollars after being translated from their original currency. The fact that sixty percent of S&P 500SPX –0.60% revenue comes from outside the country would be beneficial to the earnings of American corporations. According to statistics compiled by Dow Jones from the financial market dating all the way back to 1985, the S&P 500 has had a gain of 1.3% on average during months in which the dollar index has decreased. This compares to a gain of only 0.2% during months in which the dollar index has increased.
The performance of individual equities has the potential to improve more, and some have already done so. Companies such as Caterpillar (NYSE:CAT), Nvidia (NASDAQ:NVDA), and Micron Technology (NASDAQ:MU), who generate at least half of their revenue from outside the United States, have seen their share prices increase in tandem with the falling value of the dollar. The price of Caterpillar shares has increased by a little bit more than 35 percent from the date that the dollar reached its highest point. Nvidia’s share price has more than doubled, while Micron’s gain is close to 20%; all three stocks have outperformed the S&P 500. The surge is being driven by more factors than just the dollar alone. Nvidia, for example, has benefited from the rise of ChatGPT because artificial intelligence demands greater computing power, whereas Caterpillar, which is economically sensitive, is anticipated to benefit from China’s openness because China is a major market for Caterpillar. Nevertheless, during months in which the dollar falls, the three equities each see gains of approximately 3.2% on average. This suggests that there may be even more gains ahead if the currency falls, despite the fact that they have already experienced large rallies.
Philip Morris International (PM), which generates all of its sales outside the United States, and Estée Lauder (EL), which generates 80% of its sales outside the United States, are two companies that investors looking for less unpredictable beneficiaries of a falling dollar should take into consideration. These stocks have a monthly gain of only 3% on average when the dollar is weak, but their volatility is lower than that of the whole market. This is due to the fact that their sales and earnings are far less related to the overall demand in the economy.
If the value of the dollar continues to decline, purchasing these might be the best option.
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