The U.S. stock market no doubt has been on a stellar ride, touching fresh highs on several occasions. When the stock market surges, the U.S. dollar tends to struggle and this is what we are seeing now.
Though the dollar index moved higher from a 15-month low against the basket of major currencies following the upbeat July job data report, it is down nearly 9% in the year-to-date timeframe. Additionally, the index recorded its worst run of monthly losses last month since early 2011.
PowerShares DB US Dollar Bullish Fund (NYSEARCA:UUP), tracking the dollar index, shed 9.2% in the year-to-date time frame. This is primarily thanks to rounds of weak economic data, North Korean nuclear missile tests, geopolitical tensions, political turmoil in Washington and diminished expectations for a third rate hike this year.
In particular, Fed Chair Janet Yellen, in her latest testimony, stated that she is not in a rush to raise interest rates given muted inflation. It will continue to follow a gradual rate hike plan and unwinding of its massive balance sheet. Per the central bank, interest rates are close to the neutral level – a level that neither encourages nor discourages economic activity.
Additionally, fading hopes in the implementation of President Donald Trump’s pro-growth agenda after the failure of healthcare bill added to the woes of the greenback. Further, rejuvenated economic growth in Europe and the prospect of an end to its cheap monetary policy era has dealt an additional blow to the dollar. The prospect of a trade war with China and renewed tension on the Korean Peninsula are further weighing on the dollar lately.
Weak Dollar: A Boon
A weak dollar has fueled a superb rally in blue chip companies, which derive most of their revenues from international markets. Notably, Dow Jones broke through the 22,000 milestone for the first time on August 2. This is because weak dollar has made dollar-denominated assets cheap for foreign investors making U.S. multinationals more competitive thereby leading to increased profits. As such, companies having a higher percentage of international sales will likely outperform.
Further, commodities and emerging markets stocks are also getting a lift from a weak dollar. Given this, we have highlighted four ETFs and stocks that are benefiting from the current trend and are likely to do as long as dollar remains weak.
Let’s take a look at some of the best stocks and ETFs to consider in this case.