The U.S. dollar has been trending down since mid-summer, but now that the Federal Reserve is tapering its bond-buying program and the economy is accelerating, the mighty greenback might be ready for some sustained upside in 2014.
And that could be a problem for investors.
As good as it might be for national pride, a stronger U.S. dollar causes plenty of problems for American companies. The biggest headache is that U.S. products become more expensive in international markets. Not only does that hurt exports — and top-line growth at U.S. multinationals — but unfavorable foreign exchange reduces revenue too.
A stronger U.S. dollar will pressure sales at companies ranging from Caterpillar (CAT) to Procter & Gamble (PG) to Oracle (ORCL), and that will take a toll on the broader market. Indeed, 45% of S&P 500 revenues are generated overseas. That means a stronger U.S. dollar threatens sales — and ultimately profits — at nearly half the companies in the broader market index.
But that doesn’t mean all investments and trades are doomed by a stronger U.S. dollar. There are plenty of plays that will benefit from the trend, and some that could even breakout. Here are three of the better strong-dollar trades: