Time to start foraging for foreign stocks as dollar declines

investmentnews.com:

Still catching up after the pandemic, vacationing Americans are streaming onto foreign shores in record numbers this summer. Maybe they should check out some cheap international stocks in between beach and museum visits.

Or at least tell their advisors to start looking abroad for deals as the U.S. dollar declines.  

The S&P 500 Index finished the first half of 2023 up a healthy 16%, biting back a sizable chunk of last year’s bear market losses. Even more impressive was the technology-heavy Nasdaq Composite Index’s gain of almost 32% through the end of June.

It’s enough to make an investor cheer “USA! USA!” especially when compared to the pan-European Stoxx 600 index, which ended up roughly 8.8% over the first six months of this year, currency adjustments aside.

(Unless, of course, investors check out Japan’s Nikkei 225 jump of 27.19% in the first half, its best six-month performance to start the year since 2013, when it rose 31.57%.)

A lot of the gains in U.S. stocks have been attributed to the decline in inflation. After peaking at 9.1% for the 12-month period ending in June 2022, inflation (as measured by the consumer price index) dropped to 3% for the 12-month period ended in June.

That decline in the CPI has also signaled to the market that the Federal Reserve may be done with its series of rate hikes, which in turn will weaken the dollar. The dollar tends to rise with rate hikes as investors move to dollar-denominated investments, such as Treasury bonds, to take advantage of rising interest rates.

The dollar, which strengthened against its G-10 peers through much of the central bank’s aggressive rate hiking cycle, has lost ground to nearly every other currency since early November. David Bailin, CIO of Citi Global