The US dollar is weakening – what does it mean to stocks?

So if you have been watching the US dollar, you would know that its value is at a two year low compared to other currencies like the Euro. You also would have probably heard that gold is at all time high. This can be an indication that investors are anticipating a weaker US economy and hedging with Gold, therefore pushing the dollar value down. Also, during the past couple of years, many policies have been introduced here in the US and aboard, specially in Europe, that supported the value decline of the US dollar. But what does all that mean for companies and their stocks? Is a weaker dollar better or worse for American businesses? Well, that all depends of what type of business we are talking about.

Definitely weaker dollar can help US exports, as US products will become cheaper for other countries to purchase. This might not have a big impact on the market broadly, but it can have significant impact on some individual businesses and specific sectors’ results. Therefore, the bigger the company’s exposure to overseas market, the bigger the impact will be from weakening US dollar. Some sectors are less exposed to outside of US revenue streams and therefore less impacted by the declining value of the US dollar. Such sectors are financials, utilities and real estate, but there might be some exceptions within these sectors.

In general, technology and materials sectors get a big chunk of their revenues from aboard. The decline of value in the US dollar will help companies within these sectors increase their revenues. Some individual names that I can think of that sell their products aboard are Caterpillar Inc. [stock_quote symbol=”CAT”], 3M Company [stock_quote symbol=”MMM”], Alcoa Corporation [stock_quote symbol=”AA”], and United States Steel Corporation [stock_quote symbol=”X”]. It is important to note, that investors should not rely only on the value of the dollar to make investment decisions, but they should rely on broader and more comprehensive analysis of the company and the business they want to invest in. The value of the dollar fluctuates based on policies and economical situations and can help increase or decrease a business revenue but it is not the only factor that will determine the success or the failure of a business.