The U.S. Dollar has fallen sharply since the CPI report continuing a downtrend that started at the end of last year. The Dollar has broken below the post COVID uptrend and has moved below key support at $101 (and the nice round number $100).
Source: Stockcharts.com, as of 7/18/23
The U.S. Dollar peaked on 9/27/2022 and since then has fallen roughly 12.8%. It’s no surprise that equities bottomed close to that date considering what we know about the relationship between our currency and earnings. The two have a decent negative relationship, so as the dollar falls earnings growth rises. This relationship is plotted in the chart below. If the Dollar is around these levels on 9/27/2023 then the YOY fall will be 12.8%. As highlighted this relationship implies big YOY earnings growth of 10-30%!
Source: Carson Investment Research, Factset, S&P Global, as of 7/12/23
I’d venture to guess this is one of the reasons earnings are surprising analysts this quarter at a higher rate than any quarter back to Q3 2021.
Source: : Factset, as of 7/14/23
Sean Dillon, CMT, CFTe
SVP, Investment Strategy
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