Why US stocks remain 'attractive' despite a weakening dollar
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US stocks (^GSPC, ^IXIC, ^DJI) still look appealing despite the US dollar's (DX=F, DX-Y.NYB) slide.
Christian Lawrence, senior cross-asset strategist at Rabobank, joins Catalysts to explain why some sectors remain attractive even as the dollar weakens.
To watch more expert insights and analysis on the latest market action, check out more Catalysts here.
We've talked about this before, but just taking a look at the US dollar year to date, I mean, still down over 9%. To what extent does that put a cap on how much we can continue to see stocks rally this year?
Well, I still think US assets are attractive in general. But without a doubt, you know, we have had this sort of sell America moment. Um, but I think that that's really coming from quite extremes. And, you know, even when you think about the dollar, at the back end of last year, the long dollar was very much a consensus trade. So positioning was very stretched. So to see this sort of a pullback, I think, is is natural when the facts change essentially. Um, I mean, the the dollar is, uh, is down, as you said, 9% year to date. I think the the smallest, uh, loss against any G10 currency is about 5%, and that's the Canadian dollar, which, of course, has been struggling as well. But I think when we look overall and you look at the state of US corporates, I still think it's one of the more attractive equity markets out there. And I think this movement into Europe, I think might be a little bit overdone at this point. But dollar weakness probably has a bit further to go.
So dollar weakness has further to go, but that doesn't scare you away from US stocks. Can you walk me through that?
No. No. Yeah. So I, I think it depends. Well, in general, when you're thinking about equities at the moment, we are no longer in, uh, an index world. We are in a world where this is a stock picker's world. And when you break down the individual performance of certain sectors, there's certainly concerns within equities. But I think particularly when you look at the main drivers, I mean, more than 50% of this rebound has been the magnificent seven. And they are still going to be in good shape over the course of the next few years to come. These are world-changing companies, most of which aren't as impacted by tariffs as some other companies. So it's very much picking your sectors without a doubt. But overall, I think a lot of the dollar weakness, a little bit further to go, but I think as we move into next year, we can see a bit more strength re-emerge.