What a Trump presidency could mean for the dollar and the stock market
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The US dollar has had a remarkably strong summer, and while its rise has eased in the days following a left-wing resurgence in France’s elections, it’s still on a gangbusters ride. The greenback is about 13% stronger (measured through the the Fed’s advanced foreign economy dollar index) than it was in 2021, before the Federal Reserve began raising interest rates.
That’s great news for American tourists planning trips abroad this year (and they are, in record numbers), but not as good for the large, multi-national companies that make up the majority of the S&P 500.
What’s happening: The most recent bump in the dollar is politically charged, but, at its core, it all comes down to the Fed.
After showing a dead heat for most of the year, recent presidential polling has shifted in favor of former President Donald Trump over President Joe Biden. Should Trump’s advantage now turn into a win in November, that would likely mean the preservation or expansion of tax cuts and increased tariffs. During last month’s presidential debates, Trump reiterated his desire to impose a 10% tariff on all imports, which would likely increase inflation and cast doubt on interest rate cuts.
“After reflecting a statistical dead heat for most of the past few months, US presidential polling has broken decisively in favor of a Republican win, and markets that ignored political rhetoric are beginning to discount outcomes, with bond volatility spiking,” wrote Lisa Shalett, head of the global investment office at Morgan Stanley Wealth Management, in a note on Monday.
“While stocks have continued to grind higher, equity investors will ultimately need to deal with the potential consequences of proposed policies featuring three critical variables—tax cuts, tariffs and closed borders,” she said.
Morgan Stanley research estimates that an expansion of the 2017 tax cuts would boost deficits sharply, sending the US dollar even higher.
There are other reasons the dollar has been propelled higher as some European and Asian currencies have seen lackluster growth. The US economy has been relatively resilient through high inflation and interest rates while the eurozone slipped into recession and China and Japan suffered their own economic setbacks.
Why it matters: “The US dollar has been amazingly strong since the US is expected to lead a worldwide economic recovery,” said Louis Navellier, chairman and founder of Navellier & Associates. But that comes with potential repercussions. “A strong US dollar can hinder multi-international companies like the big stocks that dominate the S&P 500, however, smaller, more domestic companies are poised to prosper.”
While expectations for second-quarter earnings, which begin in earnest on Friday, remain high, there may be some pessimism on calls about what a strong dollar could mean going forward, he said.
A strong dollar makes US exports more expensive and reduces the profits of American companies operating overseas when earnings are converted back to dollars. It also increases competition from cheaper imports. And while a strong dollar lowers the cost of imported raw materials, it can boost inflation and hurt foreign investments.
Early signs of dementia can show in your finances
Financial files in disarray. Late payments and last-warning service-cutoff notices. Multiple daily bank withdrawals. Out-of-character purchases.
When a family member who has been fairly responsible with money all their lives becomes careless with their finances, it may be one sign of as-yet-undiagnosed dementia, reports my colleague Jeanne Sahadi.
Researchers at the New York Federal Reserve who analyzed both US credit reporting and Medicare data found that in the five years before a dementia diagnosis, a person’s average credit scores may start to weaken and their payment delinquencies rise.
“The harmful financial effects of undiagnosed memory disorders exacerbate the already substantial financial pressure households face upon diagnosis,” the researchers wrote. “Beyond susceptibility to payment delinquency, early stage [Alzheimer’s disease and related disorders] may affect new account openings and debt accumulation, credit utilization, and/or credit mix.”
Read more here.
Boeing agrees to plead guilty
Boeing has agreed to plead guilty to one charge of conspiracy to defraud the United States for its role in two fatal 737 Max crashes, the Justice Department said in a court filing Sunday evening.
It represents yet another black eye for the company after a series of embarrassing safety blunders, but the agreement avoids what could have been more serious consequences, reports CNN’s Chris Isidore.
It will pay up to $487 million in fines — a fraction of the $24.8 billion that families of crash victims wanted the aircraft maker to pay. The families of victims of two fatal crashes of the 737 Max oppose the deal, the department said.
The guilty plea is a severe blow to the reputation of Boeing, a company once known for the quality and safety of its commercial planes. Beyond the fatal crashes of the 737 Max jets, the company has faced a series of questions about the safety and quality of its planes. In January, a door plug on a 737 Max flown by Alaska Airlines blew out early in a flight, leaving a gaping hole in the side of the jet and further damaging Boeing’s reputation.
The agreement stipulates that Boeing will have to operate under the oversight of an independent monitor – a person to be chosen by the government – for a period of three years. But that oversight and the fine did not satisfy the families of victims, according to one of their attorneys.
Businesses that rely heavily on exports might struggle due to the strength of the US dollar. Investors looking to capitalize on this trend could consider investing in companies that benefit from a strong dollar, such as domestic manufacturers or companies with a large domestic customer base.
