According to Tom Lee, founder and head of research at Fundstrat Global Advisors, the weakening of U.S Dollar is having a peculiar impact on the finance stock market this year, specifically when it came to the behaviour of value and growth stocks.
In a note to his clients, he mentioned that since the mid-1990’s investors could visibly notice the consistent relationship between the value stocks, growth stocks, and the U.S dollar strength. This relationship made sense since a weaker dollar was thought to be more beneficial for U.S companies who did business abroad or exported their goods out of the country. This is the case since every unit of foreign currency that flowed in would translate into more dollars. In addition to this, the dollar had a capacity to rise every time the U.S economy was strengthening and faster growth was definitely necessary for the economically sensitive value stocks.
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This year however, he said that when it came to buying the value stocks in previous years, having a downturn in the dollar worked every time, and every time the dollar was strong there was a long growth in stocks. This year however there has been an 11 percent decline in the dollar and yet the growth stocks can be seen massively outperforming value.
So far in this year, the value of greenback had declined more than 10 versus as opposed to a basket of major currencies and in spite of this the value stocks are underperforming. The Standard and Poor’s 500 (S & P 500) value index was up 4.0 percent this year, while the growth index by a staggering 17.5 percent.
Lee further said that since this divergence between the traditional growth-value and dollar relationship is likely to subside, investing in value stocks could be profitable right now.
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