How can I use this information?
While a declining dollar is deflating to our national pride, it is not a reason for pessimism regarding the U. S.
Expect the declining dollar to exert a positive influence on the stock market. However, remember that
dollar depreciation is just one of many forces that influence the stock market. Housing, interest rates, oil prices,
demographics, politics, immigration and trade also have a significant impact on the market. Some forces are
positive while others are negative. It's the direction of the sum of the diverse forces that determines the market's
SignalTrend's unemotional computer timing system is currently bullish, but it may change its buy / sell
signal in the near future. If that happens, SignalTrend will notify you by email. Remember, SignalTrend's
stock market timing system was backtested 100 years with excellent results!
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● Stocks have performed much better after the dollar declined in value (depreciating dollar).
● Inflation has been a little higher after the dollar declined in value.
● Stock gains, adjusted for inflation, have been stronger after the dollar declined in value.
|Is a Declining Dollar Bad for Stocks?
Proprietary Graphs, Tables and Analyses - All Rights Reserved
When the dollar appreciated over a 12 month period, the S&P 500 gained 8.7% and inflation averaged 4.2%
during the subsequent 12 month period. Stock gains adjusted for inflation were 4.5% (8.7% - 4.2% = 4.5%).
However, when the dollar depreciated over a 12 month period, the S&P 500 gained 12.2% and inflation
averaged 4.9% over the subsequent 12 month period. Stock gains adjusted for inflation were 7.3%
(12.2% - 4.9% = 7.3%).
Currency Fluctuation Basics:
If the dollar weakens against foreign currencies, then imports will be more expensive to U. S. buyers. If imports
cost more, then Americans will buy fewer imports and more American made products. That's good for
When the dollar weakens, foreign currencies simultaneously strengthen. Consumers in foreign countries find
U. S. products less expensive since their stronger currency will buy more dollars. Therefore, foreign consumers
will buy more U. S. products and fewer products made in their own countries. That's also good for American
Since a weakening dollar makes foreign products more expensive, the weakening dollar creates inflation. For
example, many products consumed in America are made in China. China's currency is the yuan. If the dollar
weakened 25% against the yuan, Americans would theoretically pay 25% more for products made in China.
|Inflation Adjusted Stock Gains
|Sources and Data: Inflation is derived form the Consumer Price Index for All Urban Consumers: All Items, U.S.
Department of Labor: Bureau of Labor Statistics. The value of the dollar is derived from the Trade Weighted Exchange
Index: Major Currencies from the Board of Governors of the Federal Reserve System. The currency index includes the
Euro Area, Canada, Japan, United Kingdom, Switzerland, Australia, and Sweden. S&P 500 gains do not include
dividends. Data is from the years 1973-2007 (35 years).