Equities Continue to Benefit from a Weak Dollar

By Simon Avery

The U.S. dollar remains near a 15-month low next to the currencies of major trading partners. At the same time, U.S. stock markets are soaring. The broad S&P 500 is up 65% since March. Why the seeming disconnect?

One reason is that investors have calculated that a weak greenback means fatter profits for U.S. companies doing business overseas. That has meant bigger stock gains for companies with foreign markets than for businesses focused on the U.S. domestic market alone.

The effect is well known, especially for Canadian exporters who have relied on a relatively low loonie to compete. But now we have a neat snap shot of how the phenomenon is working on U.S. companies, thanks to data compiled for Bloomberg.

Shares of Standard & Poor’s 500 Index companies generating more than half of their revenue abroad have beaten those doing business only in the U.S. by 27 percentage points, according to data compiled by Bespoke Investment Group, a research firm in Harrison, N.Y.

Specifically, S&P 500 companies generating more than half their sales outside the U.S. have gained 48% this year, compared with a 21% rise for businesses only selling in the U.S., Bloomberg says.