What the falling US dollar has historically meant for stocks: By the numbers

A weak US dollar isn’t a good thing for stocks, if history is any guide.

The US dollar touched a three-year low on Monday as President Trump ramped up his attacks on Federal Reserve Chair Jerome Powell.

The US Dollar Index (DX-Y.NYB) has declined 9% year to date.

In a new note on Monday, Trivariate Research founder and former Morgan Stanley chief US strategist Adam Parker went back to 2001 to see how dollar weakness has impacted markets. Parker identified 16 periods where the US dollar weakened at least 5%.

Some of his findings:

• The median performance of the US equity market is 7.5% during a period of dollar weakness, which is the sixth worst of the 55 regions Parker and his team evaluated. The top three countries in terms of median performance: Greece (+17.6%), Indonesia (+17.5%), and Peru (+16.4%).

• Malaysia, South Africa, and Portugal are markets that have been up in absolute terms in all 16 prior periods when the dollar weakened.

• Only Mexico, Israel, Sri Lanka, and Pakistan have average stock market performance worse than the US when the dollar is materially weakening against the DXY.

• The worst performances by country during the latest bout of dollar weakness include Indonesia (-11%), Denmark (-12.1%), and Taiwan (-13.4%).

• The best performances by country during the latest bout of dollar weakness include Spain (+27.3%), Poland (+30.7%), and Colombia (+32.9%).

• On average, Metals & Mining, Consumer Finance, and Transportation Infrastructure were the best-performing sectors in the 16 periods of dollar weakness going back to 2001. Biotechnology, Banks, and Healthcare Technology were the worst.

“There is no question in our minds that the performance within the US equity market during the recent period of dollar weakening is far different for very understandable reasons than the previous regimes where the dollar weakened by at least 5% against the DXY. Hence, we can’t say with confidence that just because something has not happened in the past it can’t happen this year,” Parker said.

The US market’s performance this month has generally vibed with the historical trends.

The S&P 500 (ES=F) and Nasdaq Composite (^IXIC) are down about 4% each in April, with the Dow Jones Industrial Average (^DJI) off by 5.6%. Market leader Apple (AAPL) has dropped 8.5%.

Gold prices have climbed to a record high.

Year to date, the three major indexes are down more than 7%, with the Nasdaq leading stocks lower with a 10% decline.

Investors continue to take their cue from the Trump administration’s scattered approach to tariffs. More recently, concerns about the impact of tariffs on corporate profits and the economy have been compounded with fresh fears about Federal Reserve independence.