While risk assets are continuing their recent move higher today, the US dollar (as proxied by Bloomberg’s dollar index) is also reversing higher as it looks to end a four-day losing streak. As shown in the chart below, last week saw the dollar drop 1.93%; its worst stretch of five days since June 1st. While today’s rally is reversing some of those losses, last week’s move resulted in a break below support from the consolidation that had been occurring since mid-summer when the dollar fell below late 2019 lows. Although it is off the lows today, the dollar is currently around some of its lowest levels of the past two and a half years.
Assuming the dollar fails to move back above that prior support level, a weaker dollar means more attractive prices for US goods for foreigners, and as a result, that could bode well for companies with more international revenue exposure. Recently, that theory has held up fairly well. Using data from our International Revenues Database, in the chart below we created a decile analysis for performance since 7/24 (when the dollar first closed below December 2019 lows) of Russell 1000 stocks based on each stock’s percentage share of revenues that come from abroad. This excludes stocks in the Real Estate and Utilities sectors which generally have nearly all revenues coming from the US. As shown, since the dollar has been pressing to new multi-year lows, the group of stocks that has been the best performers have been those with the highest share of international revenues with an average gain of 16.5% since 7/24. Conversely, the 1st decile comprised of only the stocks with zero international revenues have underperformed with only a 7.69% gain. While not a perfect relationship given some outperformance of the second and third deciles and weakness of the ninth decile, at least at the extremes, more internationally exposed companies have been the top performers since the dollar’s leg lower earlier this year. Click here to view Bespoke’s premium membership options for our best research available.