FidelityNow: Denise Chisholm on U.S dollar, earnings growth

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The whole narrative that we're sort of in the middle of, or experiencing this

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time, is that it's all different this time. Since 2022, we've seen debasement

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in the dollar, we've obviously seen an ascent in gold.

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So I think from my vantage point, usually what I do instead of sort of

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leaning into the narrative of "is it different?" is to consider,

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well, wait a minute, what if it's not all that different?

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What if the story doesn't play out the way we think?

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And can we look at the past to see if these signals have been consistent?

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And what you say, right, we have the dollar going back to 1973.

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We've certainly seen top-decile weakness over the course of the last year, but

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in a massively strengthening trend over the last, let's call it, 10 years.

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So we haven't really seen sustained weakness.

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But the interesting part is if you said, OK, let's look past all of that

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weakness and say, well, what usually happens next?

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Outside recessions, which is obviously a problem for equities, regardless of

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the currency backdrop, and sometimes the dollar actually strengthens during

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recessions. But ex-recessions, the stock market actually

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goes up 90% of the time.

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It's actually inversely related over the next 12 months.

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So after you have seen sustained weakness in the dollar, the market is

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more likely to go up and down. And the more weakness you have seen, the

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more likely the market is to go up.

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So it gives you pause much like all of the signals that we talk about

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give you pause in that maybe it is that the dollar

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weakness doesn't mean what you think it means.

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And I think you hit the nail on the head in terms of why, is that more

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often than not, some of this is a mathematical translation, but some of it is

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just correlation. It actually correlates to a strong growth environment.

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Some of that is just the translation back of the growing share of revenues outside

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the U.S. for our S&P 500 companies, but some

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of it is just that the currency isn't the main factor

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of growth. So I think when I look at the data, I think many

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years ago, two years ago it feels like forever ago, but two years ago everybody

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wanted to talk about inflation and what that was going to mean because

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inflation was the key variable in terms of what we saw in terms

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of it being market moving, and then it sort of entered this trend of,

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yes, I mean, we could look at the deviations, but it wasn't the main driver to

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the market. I feel like that is where currency is right now.

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It isn't the main driver to the market when you look historically, why?

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Because earnings growth is, and we're still getting confirming signals that

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earnings growth is strong regardless of the currency.