Taking your cues from financial headlines of the day can be a costly mistake. That\u2019s why it is important to stick to the hard data during this significant time of economic recovery. Even with inflation concerns, don\u2019t give in to fear and emotions. I recommend keeping your focus on long-term financial success!<\/p>\n\n\n\n
To help\nyou do this, I am offering all readers our just-released Stock Market Outlook\nreport. This report contains some of our key forecasts to consider such as: <\/p>\n\n\n\n
- Zacks\nrank S&P 500 sector picks<\/em><\/li>
- Zacks\nJune view on equity markets<\/em><\/li>
- What\nproduces 2021 optimism?<\/em><\/li>
- Zacks\nforecasts for the remainder of the year<\/em><\/li>
- Top\nstocks in top industries<\/em><\/li>
- Sell-side\nand buy-side consensus<\/em><\/li>
- And\nmuch more<\/em><\/li><\/ul>\n\n\n\n
If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!
IT\u2019S FREE. Download the Just-Released June and July 2021 Stock Market Outlook<\/a>1<\/a><\/sup><\/strong><\/p>\n\n\n\n____________________________________________________________________________<\/p>\n\n\n\n
At the outset of 2021, many believed that trillions of new\ndollars in fiscal stimulus, combined with a maximally accommodative Federal\nReserve and twin government budget and trade deficits, would substantially\nweaken the dollar. The charts below put these fears into perspective. In the\nfirst chart, you can see how the U.S. monetary base has swelled above $6 trillion\nfor the first time, while the second chart shows the spike-up in total U.S.\ndebt relative to GDP:<\/p>\n\n\n\n
Monetary Base Reaches\nAll-Time High\u2026<\/strong><\/p>\n\n\n\n
![\"\"](\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/4_pic1-3-1024x395.png\")
Source: Federal Reserve Bank of St. Louis2<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n While the Debt-to-GDP\nRatio Climbs Well Above 100%<\/strong><\/p>\n\n\n\n
![\"\"](\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/1_pic2-2-1024x395.png\")
Source: Federal Reserve Bank of St. Louis3<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n You wouldn\u2019t be the only one to see these two charts and\nconclude that the U.S. has printed money at too frenzied a clip, which\ntherefore means the dollar is destined to weaken considerably from here. <\/p>\n\n\n\n
The dollar has indeed weakened from March 2020 levels when\nthe pandemic started, but it strengthened throughout Q1 2021. More importantly,\nif investors zoom out and analyze longer periods of time, one would find the\nU.S. dollar index weakened at a similar rate from 2017 to 2018. During both periods\nof weakening in the U.S. dollar, the S&P 500 rallied. <\/p>\n\n\n\n
What\u2019s interesting about the dollar debate is that you can\nalmost always find an equal amount of \u2018experts\u2019 on both sides of the table.\nSome see the strong dollar as good, while others advocate the benefits of a\nweaker dollar. If one side wants a weaker dollar for its impact on U.S. exports\nand emerging markets (since EM countries typically borrow in U.S. dollars), the\nother side views a stronger dollar as better for attracting foreign capital and\nempowering the U.S. consumer. History tells us the stock market generally has\nno preference.<\/p>\n\n\n\n
For investors, it is important to remember that relative\ndollar strength or weakness is just one factor of many when it comes to driving\nstock market performance. Many assume that a weaker dollar must be bad for\nstocks, but that is not necessarily true. As you can see in the chart below, there\nhave been periods when the dollar has weakened and the stock market performed\nwell (red arrows), and times when the dollar has strengthened and the stock\nmarket performed poorly (green arrow during 2008). There are plenty of\nhistorical examples where the opposite is true. The dollar alone does not\ndetermine stock market direction.<\/p>\n\n\n\n
![\"\"](\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/1_pic3-1-1024x395.png\")
Source: Federal Reserve Bank of St. Louis4<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n As for the effect of the alarming amounts of money printing\nand debt accumulation, there are arguments for positives here too. Consider 2020\nwhen the U.S. debt increased by $4 trillion, a significant 25% jump from 2019\nlevels. But here\u2019s the kicker: while absolute levels of debt increased\ndramatically, the interest payments on that debt decreased by 8%.5<\/sup><\/em><\/strong>For new or existing homeowners who\ndecided to refinance or buy a second home (or a bigger home) during this period\nof ultra-low interest rates, you can understand the appeal of borrowing more\nwhen it\u2019s inexpensive to do so. <\/p>\n\n\n\n
As a general rule, if the economic growth rate is higher\nthan long-term interest rates (10-year and 30-year U.S. Treasuries), then\ncountries should be able to run moderate budget deficits while maintaining a reasonable\ncost of servicing debt. Today, we\u2019re expecting 2021 and 2022 GDP growth above 2%,\nand as I write the 10-year U.S. Treasury is around 1.50%.6<\/sup> The cost\nof servicing debt is pretty attractive right now, and demand for U.S. debt has\nbeen strong. This keeps my worries about the U.S. dollar at bay, at least for\nnow. I do not think investors should worry, either.<\/p>\n\n\n\n
Bottom Line for\nInvestors<\/strong><\/p>\n\n\n\n
In my view, the direction of the dollar is not a tell-all\nfor what to expect out of economic growth or stock prices, and I do not think\ninvestors should treat it like one. Much like the global economy can absorb\nregional weaknesses (Emerging Markets, Europe) and external shocks, it can also\nabsorb currency swings, in my view. <\/p>\n\n\n\n
At the end of the day, there are too many other\nfactors\u2014domestic demand, trade, rising incomes, improving labor markets,\nproductivity gains, technology, and innovation\u2014that ultimately outweigh the\nimpact of a stronger or a weaker dollar. Investors should remember to keep\nfocused on the larger picture. <\/p>\n\n\n\n
Focusing\non the larger picture also includes keeping an eye on key data points that\ncould impact your long-term investments. To help you do this, I am offering all\nreaders our just-released Stock Market Outlook report. This report contains\nsome of our key forecasts to consider such as: <\/p>\n\n\n\n
- Zacks\nrank S&P 500 sector picks<\/em><\/li>
- Zacks\nJune view on equity markets<\/em><\/li>
- What\nproduces 2021 optimism?<\/em><\/li>
- Zacks\nforecasts for the remainder of the year<\/em><\/li>
- Top\nstocks in top industries<\/em><\/li>
- Sell-side\nand buy-side consensus<\/em><\/li>
- And\nmuch more<\/em><\/li><\/ul>\n\n\n\n
If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!
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- Zacks\nJune view on equity markets<\/em><\/li>
- Zacks\nJune view on equity markets<\/em><\/li>