What Does a Strong Dollar Mean for the Markets and Global Economy?

The U.S. dollar has strengthened significantly against the euro and other global currencies. Mitch looks at the impacts this may have on markets and trade. [Mitch on the Markets] What a Strong Dollar Means for Markets and the Global Economy For any readers considering a trip to Europe sometime in the future, now might be as good a time as any to make your plans. For the first time since 2002, the dollar has strengthened so much against the euro that the two currencies are at parity – meaning they are roughly equal in value. One dollar gets you one euro.1 U.S. Dollar to Euro Exchange Rate Source: Federal Reserve Bank of St. Louis2 This move to parity comes on the heels of the U.S. dollar strengthening by over 15% relative to the euro year-to-date, as seen in the sharp decline on the chart above. The dollar has also been strengthening against a basket of the broad developed market and emerging market currencies, which has come as the Federal Reserve embarks on a relatively aggressive monetary policy tightening campaign. The U.S. economy is also largely seen as strong relative to Europe and the developing world, particularly as China’s economy slows in response to restrictions tied to its zero-Covid policies. This relative strength encourages foreign investors to invest in U.S. assets and debt, which generally means using dollars and boosting the greenback in the process. --------------------------------------------------------------- [Are Your Investments Prepared for Unexpected Market Changes?]( Amongst the many lessons that can be learned from the economy’s ups and downs, the most important lesson is to not time the market! Instead, I recommend that investors prepare for volatility and sudden market changes by focusing on data and research when making financial decisions. To guide you, I am offering all readers our just-released Stock Market Outlook report. This report contains some of our key forecasts to consider such as: - U.S. Macro Outlook - What fundamentals are U.S. stock markets pricing in with ‘22 and ‘23? - What of U.S. GDP Growth? - Zacks forecasts for the remainder of the year - Zacks rank S&P 500 sector picks - And much more If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! [IT'S FREE. Download the Just-Released September 2022 Stock Market Outlook 3]( --------------------------------------------------------------- U.S. Dollar Index Against Developed Foreign Economies Source: Federal Reserve Bank of St. Louis4 In terms of what the stronger dollar means for markets and the global economy, there is no singular answer. A stronger dollar creates winners and losers, and in that sense, a stronger or a weaker dollar is not inherently negative or positive. Among the winners are U.S. consumers, and also businesses that rely heavily on imports in order to drive domestic sales. Americans can stretch the value of the dollar when traveling overseas and/or buying goods and services from abroad, and businesses that rely on imports may see some input cost relief given the dollar goes further. On the flip side, multinational corporations that generate considerable revenue from abroad can see foreign sales take a hit in a strengthening dollar environment. In combing through Q2 earnings reports, we saw quite a few mentions of the stronger dollar impacting foreign sales. Microsoft, for instance, generates most of its profits from overseas ($36 billion abroad versus $35 billion domestically last year), and so a stronger dollar can mean a higher cost for foreigners buying Microsoft products. The company reported a $300 million impact from a stronger dollar in the last quarter. To be sure, however, many multinationals never convert foreign profits back to dollars (repatriation), instead using their earnings to pay for production, costs, and investments in the foreign country where the revenue is derived. Foreign consumers, the U.S. tourism industry, and Emerging Markets countries can also be adversely impacted by a stronger dollar. Since a stronger dollar means foreigners have less spending power in the U.S., some may opt not to visit or may spend less when they’re here. That can of course impact hospitality businesses in the US, like hotels, restaurants, and tourist-dependent businesses. Emerging Markets can also be hindered by a stronger dollar, particularly those countries with high debt-to-GDP ratios and relatively low foreign currency reserves. Since some level of Emerging Market debt is financed in dollars, a stronger dollar means that interest payments are more expensive. That can hurt a country with high debt levels and a non-dynamic economy, particularly those that are commodity-intensive. Bottom Line for Investors The bottom line is what a stronger dollar means for equity markets. The answer, fortunately, is that there are too many other factors driving the equity markets for the dollar to have outsized influence. To the extent a strong dollar affects earnings, individual stocks can feel an impact. But broadly speaking, the stock market has done very well when the dollar was strengthening and weakening, and vice versa. There is no significant correlation between the two. A strengthening dollar historically corresponded with one of the best periods for stocks, 1995 – 2000, but also one of the worst: the 2008 bear market. At the same time, the dollar’s weakening period from 2003 – 2006 did not adversely impact the economic expansion and stock market recovery then, just like a strong dollar is not likely to shift the economy or market’s direction now. To keep your investments on track no matter the market outcome, I recommend working with a trusted advisor and focusing on data that contributes to your financial goals. To help you get started, I am offering all readers our [Just-Released September 2022 Stock Market Outlook Report.]( This special report was created to help you better prepare your investments for any market changes. It contains some of our key forecasts to consider such as: - U.S. Macro Outlook - What fundamentals are U.S. stock markets pricing in with ‘22 and ‘23? - What of U.S. GDP Growth? - Zacks forecasts for the remainder of the year - Zacks rank S&P 500 sector picks - And much more If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! [IT'S FREE. Download the Just-Released September 2022 Stock Market Outlook 5]( About Zacks Investment Management Zacks Investment Management was born out of one of the country’s largest providers of independent research, Zacks Investment Research. Our independent research capabilities from our parent company truly distinguish us from other wealth management firms - our strategies are derived from research and innovation, including the proprietary Zacks Rank stock selection model, earnings surprise and estimate revision factors. At Zacks Investment Management, we work with clients with $500,000 or more to invest, and we use this independent research, 35+ years of investment management experience, and tools we’ve developed to design customized investment portfolios based on each client’s individual needs. The end result is investment management that is research driven, results oriented and client focused. [Let's Set Up a Talk]( Don't put off planning your secure, happy retirement! Get started today by talking to a Zacks Wealth Advisor. [facebook]( [linkedin]( [twitter]( © Zacks Investment Management | [Privacy Policy]( 1[Wall Street Journal. July 22, 2022.]( 2[Fred Economic Data. August 5, 2022.]( 5 Zacks Investment Management reserves the right to amend the terms or rescind the free Stock Market Outlook offer at any time and for any reason at its discretion. 4[Fred Economic Data. August 5, 2022.]( 5 Zacks Investment Management reserves the right to amend the terms or rescind the free Stock Market Outlook offer at any time and for any reason at its discretion. DISCLOSURE Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation. Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein. It is not possible to invest directly in an index. Investors pursuing a strategy similar to an index may experience higher or lower returns, which will be reduced by fees and expenses. The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index. The Russell 1000 Growth Index is a well-known, unmanaged index of the prices of 1000 large-company growth common stocks selected by Russell. The Russell 1000 Growth Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. Nasdaq Composite Index is the market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. The Dow Jones Industrial Average measures the daily stock market movements of 30 U.S. publicly-traded companies listed on the NASDAQ or the New York Stock Exchange (NYSE). The 30 publicly-owned companies are considered leaders in the United States economy. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. Zacks Investment Management 227 West Monroe Suite 4350 Chicago, Illinois 60606 --------------------------------------------------------------- If you do not wish to receive further email solicitations from Zacks on behalf of its partners, please click [here]( to unsubscribe.