When the dollar is falling, US companies that generate most or all of their revenues outside of the US end up benefiting.  And ultimately that benefit works its way into share price performance.  Recent price action proves it.

As shown below, the US Dollar index is down 13.45% since its high from December 2016.

Using our International Revenues Database (available to Premium and Institutional members), we broke the Russell 1,000 into two groups.  One group contains stocks that generate more than 50% of their revenues outside of the US.  The other group contains stocks that generate less than 10% of their revenues outside of the US (or >90% of their revenues domestically).

We calculated the average performance of stocks in each basket over two time periods — since 12/28/16 when the dollar peaked, and since the start of 2018.

Given the dollar’s steep drop, you would expect to see the “international” basket do much better than the “domestic” basket, and that is exactly how things have played out.  As shown, the stocks that generate >50% of their revenues outside of the US are up 35.35% since the dollar peaked, and they’re up 7.3% year-to-date.  The stocks that generate less than 10% of their revenues outside of the US are up just 16.23% since the dollar peaked on 12/28/16, while they’re up just 3.62% year-to-date.  Over both time periods, the basket of “international” stocks has doubled the basket of “domestic” stocks.

Expect this trend to continue as long as the dollar is falling.  If the dollar puts in a bottom, though, you should see pretty dramatic rotation back into the “domestic” stocks.

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