Why stocks could get a boost from a falling U.S. dollar

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The S&P 500 may receive a lift from a softening U.S. dollar, according to market analysts.

“A weaker dollar is a positive sign about global investor risk appetites and is therefore a welcomed shift from last quarter,” said Nicholas Colas, co-founder of DataTrek Research, in a note emailed Monday. “If it persists, it will also help the earnings of companies with significant non-U.S. revenue sources.

The dollar has weakened more in the past two weeks than in the entire first quarter – which was the last time non-U.S. currencies were rallying, according to DataTrek. Tom Lee, head of research at Fundstrat Global Advisors, also anticipates the weaker U.S. dollar should provide some upside to company earnings. In a note Monday, he recalled that last year’s surge in the U.S. dollar, as the Fed was aggressively hiking interest rates in its battle with soaring inflation, subtracted 5%-7% from earnings-per-share results.

Since the start of the third quarter, “almost all non-US currencies have gained ground on the dollar, and at a quick pace,” according to the DataTrek note.

 

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