Carlos Barria /Reuters
Since late last year, the US dollar has weakened on widespread concern about economic growth. This development has boosted a group of stocks that Goldman Sachs had recommended to clients for this very scenario. In a note on Monday, Goldman’s equity strategists laid out why these stocks could continue rallying and the risks attached to their outperformance. As US stocks tanked late last year, the currency market was sending warning signs of its own about future financial conditions. The trade-weighted dollar has fallen more than 2% since November. Foreign-exchange traders, like their counterparts in equities, were becoming more concerned about a slowdown in US economic growth this year and a recession thereafter. Corporate news out early Monday — the start of a busy earnings week — didn’t help matters as Caterpillar and Nvidia warned about slowing global growth. Though dollar bulls are counting losses, the currency’s decline has in fact boosted a group of US stocks that are vulnerable to its gyrations. A weaker dollar makes American products more appealing to buyers with other currencies, and shares of internationally exposed companies have followed suit by rallying. Goldman Sachs found that this development had given multinationals a leg up over their domestically oriented peers. The firm’s basket of stocks with the largest share of international revenue has outperformed the group of companies with the most domestic revenue by 144 basis points during the past two months. Goldman Sachs It’s a trend that could continue if Goldman’s forecasts for economic growth and the dollar turn about to be correct. Economists expect gross domestic product growth in the US to slow to a 2.4% pace on average for the year, versus 2.9% in 2018. They see growth slowing to 3.5% to 3.8% globally. In August, Goldman’s equity strategists predicted that a reversal of the dollar’s rise would boost internationally dependent stocks— a call that’s played out over the past two months. Goldman’s FX forecast still calls for more dollar weakness, meaning that more gains could be earned from this basket. However, the forecast for more dollar weakening is a double-edged sword, Goldman warned. So far, the weak-dollar narrative for stocks is one of foreign buyers finding US products more appealing. But if global growth significantly slows down and hurts consumers around the world, multinationals won’t be spared.
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