Nvidia and 4 More Stocks That Can Benefit From a Falling Dollar

Text size

The U.S. dollar has been dropping—and that’s good news for the stock market and companies that get a large chunk of their sales from overseas.

Everything has been working against the dollar of late. Bond yields have fallen along with the rate of inflation. The fixed-income market appears to be anticipating that the Federal Reserve will stop raising interest rates as soon as this summer as the economy slows. The stock market’s rally, too, shows that investors are less worried and have less need for the dollar as a haven. These factors have weighed on the

U.S. Dollar Index,
which has dropped about 10% from a multidecade peak reached in late September.

There’s more room for the dollar to fall. The currency is near 100, a key level of support where buyers have stepped in several times in the past year. If those buyers don’t show up this time, the dollar could lose support, which could open the door to a drop to roughly 95, according to John Kolovos, chief technical strategist at Macro Risk Advisors.

That would be good news for the stock market. A weaker greenback means that overseas sales for companies based in the U.S. will translate into more dollars when they’re converted back from foreign currencies. With 60% of

S&P 500
revenue coming from overseas, that would be a tailwind for U.S. corporate profits. In fact, the S&P 500 averages a 1.3% gain in months when the dollar index falls, dating back to 1985, according to Dow Jones market data, versus a mere 0.2% gain when the buck rises.

Individual stocks can do even better—and some already have.

Caterpillar

(CAT),

Nvidia

(NVDA), and

Micron Technology

(MU), which get at least half their sales from overseas, have been rising as the dollar has dropped. Caterpillar stock is up a bit more than 35% from the date of the dollar’s peak. Nvidia has doubled, and Micron is up about 20% with all three socks outperforming the S&P 500. The dollar isn’t the only reason for the rally. Nvidia, for instance, has benefited from the rise of ChatGPT, as artificial intelligence requires more computing power, while economically sensitive Caterpillar is likely getting a boost from China’s reopening. Still, the three stocks gain about 3.2%, on average, in months when the dollar falls, suggesting that there may be even more gains ahead if the dollar falls, even though they have already had massive rallies.

Investors looking for less volatile beneficiaries of a falling dollar could consider

Philip Morris International

(PM), which gets all its sales outside the U.S., and

Estée Lauder

(EL), which gets 80%. These stocks average a smaller 3% gain in months when the dollar falls, but are less volatile than the broader market because their sales and earnings are far less tied to broader economic demand.

If the dollar keeps falling, they may be the way to go.

Write to Jacob Sonenshine at [email protected]