Does the Dollar’s Decline Spell Doom for Stocks?

The Dollar is Crashing! … Or is it?

While stories about the falling dollar—and possible causes—abound, few note the reality of where its value stands today. Yes, the greenback has dipped since the start of the year. The dollar is down 8.6% (Exhibit 1, left chart) compared to a broad, trade-weighted currency basket. That may sound big. But when placed in broader context (Exhibit 1, right chart), we see this decline isn’t as significant as headlines portray.

Exhibit 1: The US Dollar’s Recent Decline in Context

Source: Macrobond, as of 5/29/2025. US Dollar Index, daily, 1/1/2005 – 5/23/2025.

The US dollar today is stronger than it has been for much of the last twenty years. To us, this latest bout of volatility looks more like normal currency market gyrations than a bonafide crash. But what does this mean for investors? Could a greater fall in the dollar’s value broadly influence US stock returns? Not in our view.

A Weak Dollar Means Little to US Stocks

For years, debate has raged about the market implications of the dollar’s value—regardless of its strength. While a weak dollar can increase costs for domestic importers, it can also increase demand for US exports around the world. Depending on the type of business, the dollar’s softening could either help or hinder corporate earnings and, by extension, stock returns.

However, our research suggests a weak dollar simply isn’t predictive of US stock market returns. Exhibit 2 charts the performance of the S&P 500 against the dollar over the last 50 years. While at times US stocks and the greenback rose and fell together, there remains no clear-cut relationship between the two.

As Exhibit 2 shows, the correlation coefficient, a statistical measure of how closely two variables move together, is -0.15. Statistically insignificant. A reading of 0 shows no relationship, +1 shows perfect parallel wiggles and -1 signals polar opposition. This is a key reason why investors shouldn’t assume recent dollar weakness will drive future US stock returns. And as we’ll discuss, the same can be said for global stocks too.

Exhibit 2: The S&P 500 Versus the Trade-Weighted US Dollar

Source: Finaeon, Inc. and FactSet, as of 5/5/2025. Trade-Weighted US Dollar Index, S&P 500 total return from 12/31/1970 – 4/30/2025. The trade-weighted US dollar index is computed by the Federal Reserve. The index includes the G-10 countries (Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, Switzerland and the United Kingdom) weighted by the sum of the country's world trade during the 1972 – 1976 period.

Global Stocks Also Shrug at Dollar Declines

Historically, international markets have been just as ambivalent toward dollar volatility—a byproduct of their high correlation with US stocks. Exhibit 3 shows how global markets have performed in different “dollar scenarios”. When the dollar was up, stocks were up in 39% of periods. And when the dollar was down, stocks still rose 37% of the time. Put another way, stocks had a roughly equal chance of rising regardless of whether the dollar had risen or fallen, further confirming the disconnect between the greenback and stocks. The key takeaway for investors? Regardless of what the dollar did, global stocks still trended upwards 76% of the time.

Exhibit 3: Global Stocks Versus the Dollar

Source: Finaeon, Inc. and FactSet, as of 5/5/2025. Trade-Weighted US Dollar Index, MSCI World total return from 12/31/1970 – 12/31/2024. The trade-weighted US dollar index is computed by the Federal Reserve. The index includes the G-10 countries (Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, Switzerland and the United Kingdom) weighted by the sum of the country's world trade during the 1972 – 1976 period.

While bearish headlines may fret the dollar’s recent drop, it is normal for currencies to cycle in and out of favor. We believe the global stock market is far too complex for any one indicator to be consistently predictive. When it comes to short-term currency movements, we suggest investors look past the noise and focus instead on their long-term financial goals.

Want to Dig Deeper?

In this article, we reviewed the relationship, or lack thereof, between the US dollar and stocks. For more, you can watch Ken Fisher’s, founder and Executive Chairman of Fisher Investments, recent video, “Fisher Investments Reviews the Relationship Between Stocks and the US Dollar”.

For additional commentary on the dollar’s recent volatility, read Fisher Investments’ latest MarketMinder article, “On Volatility and Trump’s Tiff With Powell”.

For more market insights from Fisher Investments, read our latest articles.

Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. The results for individual portfolios and for different periods may vary depending on market conditions and the composition of the portfolio. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice.