The Stock Market Would Soar to Record Highs If the US Dollar Weakens


  • The Dow could soar to 50,000 if the US dollar weakens, according to technical analyst JC Parets.
  • Parets said that the greenback is key to unlocking massive gains in the stock market.
  • “If you’re a stock market bull… it’s not so much that you want a weaker dollar, you need a weaker dollar.”

The Dow Jones Industrial Average could soar 33% to 50,000 if the US dollar breaks down to its lows reached in 2020, according to All Star Charts founder JC Parets.

Parets said in a recent episode of the podcast Compound and Friends that a weaker US dollar is key to unlocking further gains in the stock market.

“If you’re a stock market bull and you’re making the bet that stocks are going to go higher, it’s not so much that you want a weaker dollar, you need a weaker dollar,” Parets said.

A falling US dollar tends to be a tailwind for stock prices because it results in higher profits for S&P 500 companies, according to Bank of America strategist Savita Subramanian.

“Our work suggests that every 10% drop [in the US dollar] should translate into a ~3% benefit to S&P 500 earnings per share via currency translation, all else equal,” Subramanian said. Economists at Bank of America expect the US dollar will depreciate by 3% on a trade-weighted basis in 2024, representing a tailwind for corporate profits and therefore stock prices.

For Parets, it’s all about the chart. The technical analyst highlighted the key levels he is monitoring on the US dollar index, which measures the strength of the dollar against a basket of rival currencies. After hitting new 18-month lows in December of about 100, Parets believes a breakdown to the 2020 lows of about 90 would mean huge gains for the stock market.

dollar

All Star Charts



“This [chart] is the only thing that actually matters,” Parets said, explaining that each time the US dollar tumbled from its peak in 2016 and 2020, stocks surged shortly afterwards. More recently, the S&P 500 bottomed in October 2022, which was one month after the US dollar hit its latest peak. 

“If this chart breaks down and breaks those former highs, and we go back down to the 2020 lows, that’s a Dow 50,000, S&P 6,000,” Parets said. A jump to 6,000 for the S&P 500 represents potential upside of 25% from current levels.

While the US dollar index is hovering around its long-term support level of around 100, Parets thinks its going to break down, leading to a weaker US dollar. That scenario would bode well for stock market investors, and it would coincide with a time when the Federal Reserve is likely to be lowering interest rates, which tends to weaken the dollar.

Parets isn’t the only technical analyst who sees weakness in the US dollar persisting going forward. In a note to clients this week, Fairlead Strategies’ founder Katie Stockton said that while the US dollar has recently moved higher in reaction to a counter-trend buy signal, the rally probably won’t last.

“An extended recovery seems unlikely for the dollar,” Stockton said, noting that she sees a support range for the US dollar between 99 and 100.8.

A decisive breakdown below 99 would play into Parets’s bullish outlook for US stocks.



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