Strong U.S. Dollar? Avoid These 4 Popular Stocks

by Andrew Zatlin

The U.S. dollar is super strong right now.

But I’m forecasting a dramatic reversal ahead.

What does this mean for you?

Opportunities to profit!

For a transcript of this video, see below. This transcript has been lightly edited for length and clarity.

Strong U.S. Dollar? Avoid These 4 Popular Stocks

When Trump became President, he trash-talked the dollar and boosted the Euro. He hated a strong dollar. As a result, the Euro jumped. It soon hit $1.25 in U.S. dollars.

Then, when Covid hit, the dollar continued to weaken. Makes sense: you can’t throw $20 trillion at the economy and slash interest rates without weakening the currency.

But more recently, the dollar has surged. Today, it’s more valuable than the Euro.

What’s the impact of this reversal? Let me show you.

When the Dollar Strengthens, Commodity Prices Fall

First of all, when the dollar is strong, commodity prices fall.

For example, check out this chart of copper prices:

As you can see on the far right, prices fell as the dollar strengthened.

When you overlay the price moves on top of the dollar/Euro, it’s a pretty close match:

But now let’s take this same data and lag it:

Look how closely everything lines up!

This isn’t a coincidence. Many commodities are purchased months in advance. As a result, a drop in the Euro won’t impact copper prices today, but will impact prices down the road.

It can lead to commodity deflation.

And this can have a big impact on a company’s bottom line…

A Double Whammy

When the dollar is strong, a couple of things happen:

First, the sales for multinational companies slow down. That’s because higher priced U.S. goods don’t sell as much. Additionally, costs go up. For example, the cost of buying an American product has gone up fifteen percent in just a few months.

And second, companies repatriate fewer dollars — not just because sales are down, but because foreign exchange rates impact their bottom line.

Folks, that’s a double whammy! And it leaves some companies exposed — including a handful you might have in your investment portfolio…

Stay Away from These 4 Stocks

You see, companies that do significant offshore business will report lower revenues, and lower earnings. This includes:

  • Alphabet (Nasdaq: GOOG).

  • Apple (Nasdaq: AAPL).

  • Ford (NYSE: F).

  • Mastercard (NYSE: MA).

The strong dollar is going to crush these companies’ earnings. So you should get away from them.

Domestic companies, on the other hand, will see an increase in profits. The cost of their inputs has gone down, and they’re not exposed to international sales.

The thing is, I don’t expect the dollar’s strength to last…

The Dollar’s Demise

Over the next several months, I believe the dollar will weaken and the Euro will strengthen. A few reasons why:

  • First, I believe a U.S. recession is on the horizon. As a result, the Fed will stop its rate hikes. And fewer rate hikes will lead to a weaker dollar.
  • Second, keep your eye on China. It’s still going through periodic Covid lockdowns. But eventually it’ll be back. That will increase the value of its currency, and weaken the dollar.
  • Finally, the Russia-Ukraine war will likely wind down next year. That will strengthen the Euro as the continent pumps billions into reconstruction.

Big picture: in the short term, international companies will take a hit due to the strong dollar.

But heading into 2023, look for the dollar to weaken.

As investors, there are opportunities to profit from the dollar’s rise and fall.

If you’re a “Pro” subscriber, check out the trades I believe offer the most potential.

In the meantime, we’re in it to win it. Zatlin out.

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In it to win it,
Andrew Zatlin
Andrew Zatlin
Moneyball Economics