RoboStreet – October 24, 2019
Weaker Dollar Strengthens Bullish Sentiment
For the companies that make up the S&P 500, the percentage of sales from foreign countries for 2018 was 42.9% of total sales, which is a down from the record 47.8% registered in 2014. S&P began tracking this data going back to 2003. Information technology had the most international exposure at 58.2%, which is no surprise. The U.S. is the global kingpin of technology products and services.
With over 40% of sales coming from outside America’s borders, the variations of currency valuations matter greatly on bottom-line results. Multinational companies make up the majority of holdings within the S&P 500 and as a result, the earnings models driving forecasts for future profits are largely impacted by the direction of the dollar, euro, yen, yuan, pound sterling, peso, loonie, rupee, real and other nominal currencies.
A strong dollar acts as a stiff headwind against net income for companies doing business overseas. Getting paid is weaker currency exchange rates not only depresses earnings per share growth but also impinges on how stock buybacks and dividend increases are determined. Forex headwinds aren’t talked about much, but they have a material effect on the institutional investor sentiment, and ultimately, the market itself.
For most of 2019, global uncertainties have kept the dollar trending higher against other major currencies. The U.S. Dollar Index (DXY) is the most widely followed and traded-upon currency index. The DXY is a basket of leading currencies that trade against the greenback with the breakdown of the weightings below.
U.S. Dollar Index (DXY)
Central banks around the globe are active in maintaining stability in the currency markets and will intervene when free-floating currencies get too strong or too weak for the well-being of the import-export markets. For instance, all international oil transactions are priced in the U.S. dollar – called petrodollars. Since the dollar is the global reserve currency, accounting for 61% of all known central bank foreign exchange reserves, and is why it rules the foreign exchange market as a counterparty to 90% of all transactions.
A weaker dollar is a major catalyst for America’s multinational companies and the recent pullback in the DXY index on the double catalyst of a phase one trade deal with China and progress on Brexit during the front end of the fourth quarter bodes well for the prospects of higher earnings for the S&P 500 for the fourth quarter. Traders like to refer to the currency as “king dollar” because of how stout it trades, so the recent sell off is welcome news to the most of the leading stocks that are top holdings in the S&P.
One particular way investors can participate in trading the dollar is through the Invesco US Dollar Index Bullish ETF (UUP) where the stock can be purchased along with trading put and call option strategies. It’s a highly liquid ETF that tracks the DXY and is considerably less-risky than trading forex futures.
What’s even more exciting is that my Tradespoon AI-driven tools also track shares of UUP that give our RoboStreet subscribers another avenue of opportunity outside the stock market, similar to how we’ve traded the bond market with the use of the iShares 20+ Year Treasury Bond ETF (TLT). Presently, the Seasonal Chart is showing the dollar to be a buy on a very short-term basis following the recent sell-off, and for the next 2-4 weeks, this might present a very good trading opportunity.
To be a part of when I pull the trigger on trading the dollar, Treasuries, gold and other assets outside the stock market, I highly recommend becoming a member of RoboInvestor today and getting the very most out of the universe of strategies to my AI platform brings to me daily. My AI system that guides every trade in the RoboInvestor Portfolio is making money 87.50% of the time we put any capital at risk. That’s an enviable win rate and is why I put my own money to work in every trade recommendation.
We booked profits in Coca Cola (KO) +5.22%, Dominion Energy (D) +6.09%, KLA Corp. (KLAC) +8.06% and Target Corp. (TGT) +4.20% this week, just to name a few of the kinds of companies we trade – only the best of breed names make the cut to be holdings in the RoboStreet Portfolio. Join RoboInvestor today and be a part of our journey to build real wealth in a market-tested portfolio fueled by the power of AI.
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside of the next 3 months, so my weekly updates are timely enough for you to act.
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