The U.S. dollar remains at its strongest point since the Great Recession of 2008. In the immediate present, the U.S. dollar will still most likely hold its position of strength: many emerging market countries are expected to be hit harder economically than developed nations such as the United States, Europe, and Japan.
The long-term outlook
The longer-term picture for the strength of the dollar seems a bit more challenging. The United States continues to struggle with containing the coronavirus, and more debt is expected to build in the near future due to aggressive stimulus spending. Interest rates have fallen close to zero on the Fed Funds rate, while the U.S. 10-year Treasury note currently yields +0.62% (as of 7/20/2020).
In the medium term, Europe and North East Asia seem to be better positioned to reopen their economies and may give those regions an upper hand for growth.
Why should you consider investing internationally?
Currently, valuations in international markets seem much more reasonable than in the U.S. While the stock market is currently doing well, some of its performance indicators are due to the uncertainty that the coronavirus has brought upon U.S. markets; some businesses are unable to project earnings.
Is investing internationally right for me?
As always, we recommend having a diversified approach to one’s portfolio. Markets typically go through different cycles and the relationship between U.S. and foreign and international markets will most likely shift at some point. We still believe the U.S. stock markets should hold as the core of one’s portfolio, but investors should be open to the idea of having exposure to other regions as nothing lasts forever. If you want to talk about your portfolio options and whether adding international investments would be a good fit for you, please contact us.
Eric Oh | CFP®, ChFC®, ChSNC®
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.
*Chart 1 - Source: FactSet, J.P. Morgan Asset Management; (Left) Federal Reserve, ICE; (Right) MSCI. Currencies in the U.S. Dollar Index are: British pound, Canadian dollar, euro, Japanese yen, Swedish krona and Swiss franc. Data for the U.S. Dollar Index are back-tested and filled in from March 9, 1973 and January 17, 1986 using the Federal Reserve’s nominal trade-weighted broad currency index. Past performance is not a reliable indicator of current and future results. Guide to the Markets – U.S. Data are as of July 22, 2020.
*Chart 2 - Source: FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management. Forward price to earnings ratio is a bottom-up calculation based on the most recent index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Returns are cumulative and based on price movement only, and do not include the reinvestment of dividends. Dividend yield is calculated as consensus estimates of dividends for the next 12 months, divided by most recent price, as provided by FactSet Market Aggregates. Past performance is not a reliable indicator of current and future results. Guide to the Markets –U.S. Data are as of July 22, 2020.