BMO Debunks The Idea That A Strong Dollar Is Bad For Stocks

BMO investment strategists want to dispel the notion that strong dollar = weak equities, pointing out that’s only been true recently (check out that red circle):

Chart

Photo: BMO Capital Markets

 

According to BMO, the context of the last 10 years or so needs to be examined when saying a strong dollar means weak equities:

Throughout this period emerging market economic growth exploded, commodity prices soared, and US economic growth underperformed other major developed markets – all of which are clearly US dollar negatives and unsustainable in the long run, in our view. The view from a longer lens suggests an entirely different story. For instance, year- over-year changes in the US dollar and S&P 500 have exhibited almost no correlation since 1974.

The next chart shows a couple of periods where the S&P 500 and USD have both outperformed together:

Chart

Photo: BMO Capital Markets

The bottom line is that as growth in emerging markets continues to slow and developed markets not including the U.S. are “either in or are teetering on recession,” we could be entering a new phase wherein both the USD and equities are set to outperform hand in hand.

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