Dow 22,000 Is Just The Beginning — One Chart Proves It
Yesterday the Dow reached 22,000 for the first time ever.
Another all-time high in the books. Which has led investors to panic about what seems like a long overdue correction.
But I’m here to tell you that these pessimists are wrong. The U.S. stock market can still run much higher. And I have the chart to prove it…
You see, up until recently, the stock market and the US dollar were both rallying.
That’s not normal.
A strong dollar is a headwind for both stocks AND the U.S. economy. So it was only a matter of time before something broke down.
And the verdict is in. The dollar is officially falling apart. And the way I see it, the continued pressure on the greenback is going to propel the stock market EVEN HIGHER.
Remember, a weak dollar is bad for savers, but right now it’s great for the U.S. economy and the stock market.
You see, the main reason the dollar is breaking down is because of its direct correlation to the euro currency.
In simple English, when the euro rises — the dollar falls. And right now the euro is on an absolute tear.
Take a look for yourself…
In just eight months, the Euro has surged 12% against the dollar — a trend that is showing no signs of stopping soon.
But the Euro hasn’t always been rising against the dollar.
After peaking in 2014 at a high of 1.38, the Euro plummeted against the dollar toward 1.05 after a “perfect storm” type scenario:
The U.S. dollar was surging as the U.S. economy showed promise for the first time since the 2008 financial crisis. Which prompted the Fed to forecast interest rate hikes — a bullish scenario for the USD.
In contrast, the EU economy was stagnant, and unemployment remained high since the 2008 financial crisis. And at the same time the U.S. Fed was debating raising rates, the European Central Bank was still trying to spur growth with QE.
Throw on top the whole Greek Bailout scenario and the looming Brexit referendum, and the last few years really were a nightmare for the Euro…
But The Euro Didn’t Stay Down For Long!
The European economy has rebounded nicely since then. In part to a series of positive moves in stark contrast to the nightmare scenario just described…
- European consumer confidence is now at the highest level in nearly a decade.1
- Brexit didn’t tear apart the European Union as once anticipated.
- Yellen didn’t raise rates significantly — thus keeping the USD weak.
- Economists now forecast an end to Europe’s QE policies.
These are all bullish scenarios for the Euro to continue moving higher against the dollar.
So what does this mean for your portfolio? And how can you take advantage of the currency trend?
Here are my thoughts:
The U.S. stock market can still go higher: Let’s look at this from a European businessman’s perspective. An increased value in the Euro relative to the USD means that he can now buy more U.S. goods and services for less Euros.
That means an increase in demand for U.S. goods and services is on the horizon — which means U.S. stocks may get a chance to live up to their historically high valuations.
Buy U.S. companies that sell goods overseas. In addition to the higher demand for U.S. goods and services, U.S. companies that sell to Europe will also benefit from lower price points.
Here’s what I mean:
Take General Electric (NYSE:GE). Let’s say they target a selling price of $1.2 million on aircraft engines sold in Europe. When the Euro/USD exchange rate was 1.05, they would have to sell the engine for about €1.143 million to meet that target.
But now, with the exchange rate at 1.18, GE can lower their price to €1.02 million, and still earn their target of $1.2 million.
Buy gold. Commodities are another beneficiary of the weaker dollar. Because they are priced in U.S. Dollars, when the value of the dollar decreases, it will subsequently cost more dollars to buy the same amount of a commodity.
I’ll be keeping an eye on the future movements in the Euro/USD value, and as always, you’ll be the first to know.
Here’s to keeping your edge,
Managing Editor, The Daily Edge