Historically, the dollar index level drives many trends in the United States' gross domestic product (GDP). After reporting a better-than-expected 2.8% growth for the past quarter, GDP is now accredited to the strength of consumer discretionary stocks and behaviors. It's never good to be too concentrated in one area as an investor and a country.
A market rotation has begun, with bonds as one area of interest. Stanley Druckenmiller has made a rotation of his own by selling out of NVIDIA Co. (NASDAQ: NVDA) and buying into the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT). Investors need to remember that bond prices move opposite to yields, so his bet is the same bet that the CME's FedWatch tool is showing: over a 90% probability of interest rate cuts coming by September 2024.
Lower interest rates mean a lower dollar, and while that may be bad for domestic consumption, it is definitely good for companies with high international sales exposure and for stocks that export a lot of their products. Names like Nike Inc. (NYSE: NKE), Boeing Co. (NYSE: BA), and even Alamos Gold Inc. (NYSE: AGI) make this list.
Nike's Global Reach Could Shield It from Recent Dip
After reporting its second-quarter 2024 earnings results, Nike's shares sold off aggressively by nearly 30% in the following weeks. Finding it hard to gain bullish traction again is suitable for patient investors, as it gives them additional time to slowly build their potential positions in this name.
The main reason to consider a stock like Nike during a declining dollar index environment is straightforward. Nike has a lot of international exposure to Europe and Asia, so when the currency exchange becomes stronger in those regions, Nike's sales will more than offset the decline in North American sales.
This is why Wall Street analysts still have a consensus price target on Nike stock for up to $96.3 a share, daring it to rally by 32.4% from where it has fallen to today. Behind these targets is the forecast for 13.1% earnings per share (EPS) growth in the next 12 months, which may be understated considering the macro trends at play.
China is Nike's second-largest market. A recent round of economic stimulus in that country may trigger new consumer demand and increase Nike's sales, adding to the bullish evidence investors are now facing.
Travel Boom Secures Boeing's Future Despite Scandals
The Transportation Security Agency (TSA) recently reported a new record for daily travelers, which will translate into airline stocks ordering more aircraft to boost fleet numbers and tend to this rising travel boom. Who else besides Airbus (OTCMKTS: EADSY) will serve this need, if not Boeing?
Because Boeing is based in America but exports a significant amount of its manufactured products, a weaker dollar could make Boeing's exports more attractive—and affordable—for foreign buyers. That could be one of the trends behind Wall Street analysts' forecasting EPS to swing from a current loss of $2.27 a share into a net profit of $4.19 in 12 months.
That massive swing in EPS is sponsoring analysts at the UBS group to slap a price target of up to $240 a share on Boeing stock, directly calling for a net upside of 27% from where it trades now. The stock has fallen to only 70% of its 52-week high on recent scandals after a few consecutive accidents.
Regulatory entities and the company's C-suit are acting to get Boeing past these incidents and get the stock back to its former glory; investors can lean on that. On the opposite end of this bullish evidence is the bearish capitulation caught in Boeing stock.
Over the past month, Boeing's short interest declined by 5.7%, allowing more bullish traders to enter the stock.
Gold Leads the Charge in Dollar Rotation
Every commodity is quoted in dollars, so any change in perception of the dollar index’s strength will likely be reflected immediately in the price. In the case of gold, reaching a new all-time high is one such vote that doesn’t suggest nations are confident about the dollar right now.
Those at Goldman Sachs now forecast gold to reach an even higher level, at $2,700 an ounce, as nations stockpile the precious metal.
This behavior is due to global inflation. Since the world mostly uses the dollar as a payment and settlement currency, any inflation outside the United States that requires printing money will affect the dollar just as much as the Federal Reserve.
So, knowing that the bets are off for a downside scenario in the dollar, investors can look at Alamos Gold stock for a potential bull run. Wall Street is accepting this thesis, as analysts now forecast up to 25% EPS growth for the next 12 months, pushing price targets to $27.25 for those at Bank of America, daring the stock to rally by 65.2% from where it trades today.
