Investors may choose to limit their international exposure for the time being and stick to their home turf.
According to Main Management CEO Kim Arthur, global markets will suffer significantly as a result of the weakening dollar.
“What the US dollar does is one of the highest predicting factors for [the] future performance of international stocks versus US stocks,” Arthur said this week on CNBC’s “ETF Edge.” “The dollar was in a straight bull market from 2011 to 2022, so you were going to lose in international equities no matter what.”
The US dollar index fell to a 15-month low on Friday. It comes around ten months after it reached a 10-year high.
“The dollar peaked in September of last year, okay?” So you must have an opinion on where the dollar is headed. “We believe the dollar is headed lower,” Arthur remarked.
Arthur, the former head of Bank of America’s institutional sales and trading department, believes the dollar will finally strengthen.
“In terms of fighting inflation, we are far ahead of the rest of the world.” Our inflation rate is lower than that of the rest of the globe. “Our interest rates are higher than the rest of the world,” Arthur explained. “So, what does that imply?” That’s a wonderful setting for us to slash rates ahead of the rest of the world. And that gap makes the dollar stronger.”
Another market factor that could affect global stocks, according to ETF Action Founding Partner Mike Akins, is the strong interest for US mega-cap technology firms.
“You see more and more flows going into US stocks….” There is very little money flowing into the international market. “And that kind of creates itself,” Akins explained. “I’m not sure what the catalyst is, but it has to start with those big names: Microsoft, Apple, Amazon, Tesla, and now Google [Alphabet].”
These are the names that are driving the S&P 500’s multiple growth because they account for such a huge portion of it. That is where the catalysts will have to be to see value return, international return, and developing return.”
The iShares MSCI Emerging Markets ETF was up 8% year to date as of Friday’s close. In the meantime, the S&P 500 is up 17%.