Market Analysis

So Goes Jay-Z

No one's immune from weak dollar fears—but fears don't translate into fundamental trouble for markets or economies. Weak or strong, the dollar doesn't dictate stock market direction.

Story highlights

  • Hip-hop mogul Jay-Z added his name to the growing list of Hollywood luminaries who fear a weak dollar.
  • The dollar's been weak for nearly the entirety of this bull market.
  • Weak or strong, the dollar's strength isn't predictive of stock market direction.


Bad news for dollar bulls (if there are any left). Rapper Jay-Z has joined Brazilian supermodel Giselle Bundchen in disparaging the Yankee dollar. In a recent video, he's seen flashing a bill fold not of dollar bills, but 500 euro bills. The dollar's out. (If you're not familiar with Jay-Z, he's a hip-hop mogul—net worth over $500 million—the king of bling.)

Jay-Z, the New Alan Greenspan
By Staff, The Wall Street Journal

Consider the repercussions. Will 50 Cent have to change his name to 50 Kroner? Will diamond encrusted euro signs become the next must-have accessory?

These guys have it all wrong. If they're abandoning the dollar for a stronger currency, they ought to be flashing the Canadian dollar—the blingiest currency of them all. But perhaps they're concerned the salmon-colored "Loonie" doesn't send the right message.

We don't make dollar bets—short-term currency swings are as devilish to time as stock moves—but the fact Hollywood's gone bearish on the dollar is about as good a reason you can get to totally disregard the dollar as a market negative. If news of dollar weakness has filtered through to Gisele's pretty ears, we're well satisfied there's no surprise factor left for a weak dollar to move the market much in any direction.

The market moves on surprises, not the well-known, but it also moves on fundamentals. How, fundamentally, does a weak dollar hurt stocks? Look at it this way, if you have a global portfolio (and most of you should) it makes your foreign stocks look like super performers relatively. But if you're investing US dollars in US stocks, the dollar's strength doesn't matter one bit. We can quibble over whether foreigners will be less interested in US stocks based on their dour dollar sentiment—but remember, US and foreign markets correlate strongly. If foreign stocks want to rise a lot, US stocks are likely to follow. And, if you invest globally, it doesn't much matter who wins this year's horse race!

Even recent history doesn't support weak dollar fears. The dollar's been generally weakening (it strengthened in 2005, but otherwise was weak) during this entire bull market. Said another way: The dollar fell; US stocks rose. The dollar strengthened against all major currencies in 2000 and 2001, while stocks fell—a lot! A strong dollar didn't help us then, why should it help us now? Stocks can rise and fall no matter which way the dollar's heading. And because currencies are so cyclical, the currency impact on a global portfolio nets out to very little over long periods.

Consider this weak dollar positive—it makes our exports more competitive and shrinks our trade deficit.

Exports Help Shrink the Trade Deficit to Lowest Level in Two Years
By Michael M. Grynbaum, The New York Times

Frankly, we don't view a big trade deficit as a negative, nor a shrinking deficit as inherently good. Exports just aren't that important an economic driver and imports help keep our economy efficient and thriving:

Why We Trade
By Russell Roberts, Foreign Policy

We point this out to underscore the fickleness of investor concerns. Just a few months ago, headlines warned of impending doom because our big trade deficit was "unsustainable." Now that the trade deficit has shrunk, no one's shouting, "Yippee! We're saved!" Instead of fretting a big trade deficit, the media's moved on to agonizing over the dollar—both equally baseless fears.

All this fretting currency strength is overlooking a key fact—currencies by definition are zero sum. When one goes down, its corresponding pair is rising. In a global world, if you believe a weak currency is bad (or good—some folks hate a strong dollar) for one economy, you must also believe its corresponding strong currency is good (or bad) for the other economy. But there would be no net effect globally.

If you're planning a whirlwind European tour, then a weak dollar is likely a major bummer. Probably why jet-setting Giselle is so glum! And if you make your living in-and-outing currencies, you could be imperiled by dollar weakness. If that's not you, relax and let Jay-Z and Giselle fret the weak dollar—you don't need to.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.