Year 2020 can be rightfully referred to as annus horribilis, with the global economy dealing with the challenges thrown by the COVID-19 pandemic. Growth pace has been hurt badly, as suggested by the International Monetary Fund’s forecast of a 4.4% decline in the world output in 2020, whereas it recorded growth of 2.8% in 2019.
The world’s largest economy — the United States of America — too felt the heat severely. Its growth projection by the IMF is (4.3%) for 2020, whereas 2.2% was recorded in 2019. It is worth mentioning here that the U.S. dollar — the most favored currency for trading in the world — too lost its sheen in the year. The U.S. dollar index has lost ground by 5.7% so far in 2020. In particular, the index shed as much as 7.4% since March. A brief discussion on why the U.S. currency has lost and is quite likely to continue losing momentum is given below. Reasons Why Greenback Lost/or is Losing Value
With the outbreak of the coronavirus, the United States witnessed sluggish demand and supply environment, a dip in international trade that was already suffering from import tariffs-related woes, erosion in corporate profits, and major stock indexes plunging in red territories. All these weakened growth prospects of the country and, hence, impacted the currency’s value.
Beside the above-mentioned havocs created by the pandemic, multiple countermeasures to tackle its impact made the situation worse for the currency. Firstly, the lowering of the interest rates by the Federal Reserve — aimed to infuse money into the system and boost economic activities — made the currency unattractive. Notably, the Fed lowered the interest rate to 0.10% in March. It recently maintained the target for the benchmark interest rate at 0-0.25% for the short term. Further, the government tried to control the damages caused by the pandemic by offering various financial stimuli to various sections of the economy. Such packages are anticipated to have added to the country’s fiscal year deficits. Also, a likely improvement in foreign trade policies under the new government and its successful implementation are expected to boost growth prospects of foreign nations. This, in turn, can shift investors’ preferred investment destination from the United States to other foreign nations and, thus, contribute to the weakening of the dollar. Impact of Weakening U.S. Dollar on Stocks
A weak U.S. currency situation is usually unwelcoming mainly for companies with high imports. However, multinational companies, especially those deriving a major chunk of revenues from international operations, are most benefitted in such a situation. Their exports are valued in foreign currencies and these, when converted, fetch a larger number of U.S. dollar revenues.
Below we provide a brief discussion on five U.S.-based companies that are potential winners in a weak dollar situation. Apple Inc. ( AAPL Quick Quote AAPL - Free Report) : The company, with headquarters in Cupertino, CA, is well-recognized globally for its iconic product — iPhone. Also, it offers products like AirPod and Apple Watch as well as services like Apple Music and App store. A large part of the company’s manufacturing operations, assembly units and supply chain are located internationally. In fiscal 2020 (ended September 2020), the company sourced 45% of revenues from North America operations and the rest came from international businesses. With an extensive global presence, it is bound to benefit from a weak dollar situation. Its endeavors to promote its service businesses through on-line platforms as well as the launch of technologically advanced devices are likely to add to its businesses worldwide. However, heavy dependence on iPhone sales, exposure in China and competition are threats for the company. Apple presently has a Zacks Rank #3 (Hold) and a $2,153.4-billion market capitalization. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Its shares have gained 72.5% so far in 2020 as compared with the Zacks Computer - Mini computers industry’s growth of 71.7%. In the past 60 days, its earnings estimates have been revised up, reflecting bullish sentiments for its growth opportunities. Notably, an increase of 0.5% and 1.6% for fiscal 2021 (ending September 2021) and fiscal 2022 (ending September 2022) have been recorded in the past two months. Also, the company’s earnings are expected to increase 11.5% in the next five years.