Much has been made about the current state of affairs of the U.S. dollar. The greenback’s slump in 2025’s first six months is the currency’s worst first-half showing in 52 years. That’s more than enough to sound alarm bells in the global currency market.
Stocks tell a different story. Against the backdrop of significant dollar retrenchment, the S&P 500 is up more than 7% year-to-date. The Nasdaq-100 Index (NDX), followed by the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM), has been even better. Its had a 10.36% gain since the start of the year.
Those could be signs some market participants are overly concerned about the effects of the weak dollar. That’s particularly the case for the technology sector, which is far and away the largest sector weight in QQQ and QQQM. Take the cases of the Magnificent Seven stocks, which combine for over 40% of the QQQ/QQQM rosters. Last year, that group generated $1 trillion in ex-U.S. sales, according to Voronoi. And that’s noteworthy. Because when the dollar is weak, companies converting sales in foreign currencies back to dollars can potentially generate earnings tailwinds.
More Weak-Dollar Benefits for QQQ
Among broad market ETFs, QQQ and QQQM are perhaps among the most positively levered to a declining dollar. The aforementioned data point regarding the Magnificent Seven confirms as much. So does the fact that in 2024, exports courtesy of U.S.-based semiconductor manufacturers reached $57 billion, according to the Semiconductor Industry Association. The Invesco ETFs are homes to a slew of chip equities.
All of that is to say the translation effect is not to be marginalized. That’s especially so when it comes to sectors whose member firms do significant business in markets outside the U.S.
“The weaker dollar is a substantial underappreciated tailwind for U.S. multinational earnings, and this is because these companies sell products overseas and then get paid in foreign currency,” noted Michelle Weaver of Morgan Stanley. “So, when the dollar’s down, converting that foreign revenue back into dollars, gives them a nice boost, something that domestic only companies aren’t going to benefit from. And this is called the translation effect.”
The extent to which remains the slumping dollar affects corporate earnings remains to be seen. But with second-quarter earnings season ramping up, investors could soon glean insight regarding weak dollar benefits. And those perks could extend over the remainder of 2025.
“Recently we’ve seen earnings revisions breadth, essentially a measure of whether analysts are getting more optimistic or pessimistic start to turn up after hitting typical cycle lows,” added Weaver. “And based on our house view for the dollar, there’s likely more upside ahead based on that relationship for revisions over the next year.”
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