A
weaker
dollar
will
continue
to
support
a
broad
stock
market
rally
that
has
already
seen
an
extraordinary
run-up
this
year.
Since
topping
out
in
late
last
September,
the
ICE
U.S.
Dollar
Index
has
fallen
about
13%.
As
of
Friday,
it’s
down
about
2.3%
this
year.
A
weaker
dollar
“starts
to
set
into
motion
a
few
different
dynamics,”
said
Yung-Yu
Ma,
chief
investment
officer
at
BMO
Wealth
Management.
A
softer
dollar
is
a
boon
for
the
S
&
P
500
because
a
large
number
of
companies
in
the
index
generate
significant
sales
overseas.
With
their
exports
priced
more
competitively
against
overseas
rivals,
these
companies
can
now
sell
more
goods
abroad.
And,
with
the
currency
translation,
these
firms
stand
to
make
more
profit
even
if
the
volume
of
goods
solds
is
unchanged.
.DXY
1Y
mountain
ICE
U.S.
Dollar
Index
over
past
year
A
weaker
dollar
typically
lifts
large-cap
stocks
that
are
more
likely
to
have
an
international
footprint.
However,
one
sector
the
trend
will
significantly
bolster
are
mega-cap
tech
companies
that
have
already
enjoyed
a
boost
this
year
from
the
mania
for
generative
artificial
intelligence.
The
tech
sector
generates
even
more
sales
abroad
than
does
the
S
&
P
500
as
a
whole,
which
clocks
in
at
about
40%,
experts
say.
“This
would
just
be
kind
of
another
tailwind
for
them
to
potentially
continue
to
perform
in
the
second
half
of
the
year,”
said
Shannon
Saccocia,
chief
investment
officer
at
NB
Private
Wealth.
Conversely,
a
weaker
dollar
is
less
likely
to
help
small-cap
companies
that
are
less
likely
to
have
a
presence
overseas.
Running
same
inflation
race
Market
experts
think
that
the
downward
momentum
in
the
dollar
will
continue
for
some
time.
That’s
because
the
Federal
Reserve
is
closer
to
stopping
its
rate
hiking
campaign
than
other
central
banks
around
the
world
that
are
continuing
to
fight
persistent
inflation.
B.
Riley
Financial’s
Art
Hogan
said
the
trend
has
some
legs
to
it,
possibly
through
the
first
quarter
of
2024,
assuming
the
Bank
of
Canada,
the
Bank
of
England
and
the
European
Central
Bank
make
more
progress
fighting
inflation
with
higher
interest
rates.
“We’re
all
running
the
same
race
against
inflation,”
said
Hogan,
adding,
“Our
central
bank’s
in
the
lead,
so
therefore,
our
currency
is
dropping
more
against
those
other
currencies
that
are
represented
by
more
central
banks.
So,
I
think
the
leveling
out
happens
when
they
catch
up
to
us
in
that
race
against
inflation.”
Hogan
expects
the
dollar
could
possible
level
out
around
the
mid-90s
range,
using
the
ICE
U.S.
Dollar
Index
as
a
benchmark,
around
where
it
traded
in
early
2022.
The
index
ended
Friday
at
101.09
“Obviously,
it’s
not
going
to
go
in
a
straight
line.
And
there’s
been
volatility
around
that,
but
it
certainly
feels
like
the
dollar
index
could
settle
in
at
that
level,”
Hogan
said.
“I
think
all
that’s
healthy.”
To
be
sure,
Neuberger
Berman’s
Saccocia
said
a
weaker
dollar
is
unlikely
to
be
as
meaningful
as
it
is
in
other
years,
given
the
continued
global
discussion
around
inflation
and
the
possibility
of
a
recession.
“There
wasn’t
as
much
emphasis
on
currency
translation
last
year”
when
the
dollar
strengthened
going
into
the
autumn,
Saccocia
said.
“And
so,
I
don’t
think
it’s
going
to
be
as
strong
a
tailwind
as
it
would
be
just
from
a
sentiment
perspective,
as
the
dollar
weakened
because
there
are
so
many
other
factors
that
are
involved.”
Still,
various
parts
of
the
markets
stand
to
gain
as
the
dollar
comes
in.
Beyond
the
artificial
intelligence
plays,
a
weaker
dollar
would
also
lift
emerging
markets.
VWO
YTD
mountain
Vanguard
FTSE
Emerging
Market
ETF
in
2023
Emerging
markets’
economies
are
typically
more
tied
to
commodities
prices,
which
are
set
to
rise
as
the
dollar
weakens.
What’s
more,
emerging
market
companies
more
easily
pay
back
dollar-denominated
debt
when
the
greenback
is
weaker.
“We’ve
got
some
more
room
to
come
in,”
Hogan
said,
referring
to
the
dollar
weakening
further.
“And
the
more
it
comes
in,
the
more
those
positive
attributes
play
out
as
a
tailwind
for
the
equity
markets.”
