Personal Wealth Management / Expert Commentary

Fisher Investments Reviews the Relationship Between Stocks and the US Dollar

Fisher Investments' founder, Executive Chairman, and Co-Chief Investment Officer, Ken Fisher, reviews the relationship between the U.S. dollar’s strength and stock market performance. According to Ken, changes in the dollar have little to no measurable impact on the direction of the US or global stock markets. Ken explains that focusing solely on the dollar's fluctuations oversimplifies the complexity of an interconnected global economy—of which, the U.S. accounts for only ~25%.

Ken highlights that US and international stock markets exhibit high correlations, regardless of dollar movements. Instead of worrying about short-term currency shifts, Ken encourages long-term investors to take a broader perspective on global markets.

Transcript

Ken Fisher:

So pretty often. Off and on. Sometimes yes. Sometimes no. I get the question, which has been popping up a little lately, "Dollar's been weak. What does that say about markets looking forward?" Now sometimes that question comes the other way around. "Dollar's been strong. What does that say about markets looking forward?" Both of these questions, there's an impact there. It's about the same impact that you get from watching reruns of The Three Stooges. Now when I was young, The Three Stooges were a much bigger deal than anybody ever thinks about them being today. But there's Moe and Larry and Curly and a lot of nonsense there. And there's a lot of nonsense in all of this. And let me take you through this.

First and foremost, particularly Americans, but this is also true in many other countries, like maybe most countries. Have a near impossible time getting that their country and their currency are a subset of what really matters, which is the global market, the global currency and the global economy. America is the biggest and greatest economy in the world, beyond doubt, in size and in quality and in diversity. But that said, it's still subset to the world. Sometimes it leads the world. Sometimes it lags the world. It leads more than it lags because it's the greatest. But the fact of the matter is, we have a very long history of the dollar wiggles, and we have a very long history of stock prices. And the correlation between them is nada. And there's a reason for that.

I want you to think about this from a global perspective, not from a US perspective. Think about it. You know, there's a lot of people say, oh, cause they're thinking in terms of politics? You know, we should be thinking about America first. Let me just put it to you this way. If the dollar going down, which is what this question is about, were to be good or bad for stocks in a global economy, that means that the reverse happening to the aggregate money weighted currency of all other countries, it would be the reverse for. Do you follow that simple logic? If the dollar going down would be, let's say bad for stocks—US stocks, that should mean that the non-dollar going up should be good for non-US stocks. But in fact, US stocks and non-US stocks correlate overall very highly. Not every little country, but overall the US to the All World Index is a very high correlation. The only difference between the world and S&P 500 this year is a few percent. And that's true whether the US goes up, the US goes down, the world goes up, the world goes down. This is true whether the dollar is rising or whether the dollar is falling.

The US makes up just about, not quite, a quarter of global GDP. Once you get that, the other 75% is made up of all those other currencies. If you think of them like England—pound sterling, weighted by its share of global GDP. The eurozone weighted by its share of GDP, the yen and Japan weighted by its share of GDP and all the rest. That other 75% is three times the size of America. So you wouldn't intuitively think that America would be the tail that wags the dog. And it isn't. Nor is America unimportant. It's the global effect. Now, here's the point that people have a hard time with. The fact is, the only global effect of currency overall is inflation, or lack thereof. Excess money creation or not. Otherwise, there is no global currency you can measure that fluctuates. That's the only thing that fluctuates globally.

We have a very, very long history of dollar wiggles against all these other currencies. And yet what tends to happen is some irregular sine wave driven by sentiment and demand over short to intermediate time periods. And I challenge you, if you go to a website like I'm just going to pull one, let's say CNBC. You go to the top banner and they give you the option to look at, you know, look at stocks, US stocks, foreign stocks, bonds, currency, crypto, oil, stuff like that. So you go into currencies and you look at, and they give you different ones you can look at like euro to dollar, or Australian dollar to US dollar or, or, or. And you look at these and you see how's it been doing over the last year. Then you look at and you say how's it been doing over the last three years? Then you look at it and say, how's it been doing over the last three months? Then you look at it and say, how's it been doing over the last month? And you get all kind of different variations: dollar weaker, dollar stronger. This one stronger, that one weaker. None of those tell you anything about where the stock market's going. None of those tell you anything about where the global economy's going.

And in fact then and this is the one I challenge you on. Take them to the longest time period you can take them to. And if you just do all time period, you can go back with some of these like against pound sterling. And you can see them going back several decades, and you see this irregular sine wave, and you see that we're not very different from where we were way back when, once upon a time. That's the point I want you to see. We have a very long history. We have a history a lot longer than that. But we have a very long history, and there's no there there. So you shouldn't worry about it. I know that's not the answer that almost anyone wanted to hear, but it's the truth. This does not, is not causal. This is not a factor that markedly in any way that can be measured, tells you whether US or global stocks will do well or badly. Thank you for listening.

Voice of Ken Fisher:

Hi, this is Ken Fisher. Subscribe to the Fisher Investments YouTube channel if you like what you've seen. Click the bell to be notified as soon as we publish new videos.

The definitive guide to retirement income.

See Our Investment Guides

The world of investing can seem like a giant maze. Fisher Investments has developed several informational and educational guides tackling a variety of investing topics.

Learn More

Learn why 170,000 clients* trust us to manage their money and how we may be able to help you achieve your financial goals.

*As of 12/31/2024

New to Fisher? Call Us.

(888) 823-9566

Contact Us Today