The Dollar and Domestics
As noted in today’s Morning Lineup, the US dollar among other assets has continued to rise post election. The Bloomberg Trade-Weighted Dollar Index is now up 1.66% versus the close on election day. With those gains, the dollar is now trading at some of the highest levels of the past year.
In last week’s Bespoke Report, we discussed the market’s winners and the losers from the election, and obviously as shown above, the dollar has fallen into the winners category. As we have discussed in the past, generally in strong dollar environments, the stocks most poised to benefit are those that generate the highest share of revenues domestically. Conversely, in weak dollar environments, it’s the stocks that generate the majority of their revenues outside the US that tend to perform relatively well as their goods and services become cheaper for international customers.
That dynamic has exactly played out. Below, we show the average performance since Election Day by deciles of Russell 1,000 members based on their international revenue exposure. Decile one is comprised of all stocks with 100% domestic revenues (domestics), and each group moving up the chain to decile 10 has an increasingly higher share of international revenues. The top performers, with an over 5% average gain, are the domestics whereas the most internationally exposed stocks are up a meager 1%.
