Will a decline be good for stocks? It is an interesting question, given that during 2022 there was a significant non-correlation between the dollar and the stock market. The strong dollar rally was something I suggested could be a problem for stocks, given what happened in 2020. It was a running debate with Michael Brush, who writes for MarketWatch.
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He argued the dollar would remain weak, leading to a continued stock market rally. Contrarily, our argument also underpinned our thesis to buy energy stocks in November of that year as the most hated assets became leaders.
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That last comment is the most important. In 2021, the dollar decline provided a tailwind to stocks. Such makes sense, given that 40% of corporate revenues are from international sales.
SP500-Aggregate Revenue Exposure Percentage Chart
As I stated to Michael, the risk to portfolios is a reversal in…