It’s all about inflation right now and how much more work the Federal Reserve will need to do to tame inflation. The opening paragraph of this week’s Weekly Market Review puts our inflation woes in context with the last time our country experienced rapid increases in the cost of goods and services. In comparison, we all hope this stint of higher prices is much more abbreviated than the inflation of the late 70s and early 80s. As unpopular as the Feds moves are for the investment markets, many investors welcome the interest rate increases as a “rip the band-aid” off and get it over with approach.
The third paragraph of the WMR highlights the increase in value of the US dollar versus the Euro over the last year and details the reason for the US dollar’s growing strength. As an American, the thought of a stronger dollar seems like a positive and it is in many ways. After all, we want to maintain our dominant economic position in the world. The stronger dollar though, is not generally positive for US investors. In fact, many large corporations prefer a weaker US dollar. A stronger dollar makes the goods of US companies more expensive for foreign buyers. A weaker dollar makes those goods less expensive allowing companies to sell/export more goods.
From an opportunity perspective, a company’s ability to successfully sell and export their goods to foreign buyers is huge and is growing rapidly. An enormous number of people are moving from low-income to middle class in many emerging markets. In India alone, it is projected that 800 million people will move from lower social economic status into the “middle class” in this decade. To put that into perspective, that is more than two times the total population of the USA. For corporations, it is a land grab opportunity to get those new consumers to buy their goods. A weaker dollar helps make those US goods more affordable. That allows those corporations to be more successful which should in-turn allow the company’s stock price to increase, creating more wealth, which makes us stronger economically. So, in many ways a weak dollar ultimately makes our country economically stronger.
As always, we hope you find the Weekly Market Review both informative and interesting. Have a good week!
Trevor N. Coe, CFP®
TREVOR'S WEEKLY MARKET REVIEW
July 21, 2022|