U.S. dollar bank notes are arranged for a photograph on September 7, 2017 in Hong Kong.

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The strong dollar has been a sore point for multinationals reporting earnings, but that could change in 2020 and the currency could create some upside for the stock market.

Wall Street analysts expect a decline of several percent in the dollar in 2020, and it has already begun to slide, with a drop so far in the dollar index in the fourth quarter of 2.7% and a 1.6% in December. For 2019, the dollar index is up just about a half percent and is higher by about 5% over the past two years.

For S&P 500 companies, about 43% of their revenues are from overseas sales, according to S&P Dow Jones Indices. If the dollar weakens, the goods and services sold by those companies become cheaper for foreign customers. That in turn should help corporate profits and boost U.S. exports.

“I think it’s a trade-off,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “The translation of those foreign earnings back into dollars may be helped, but if the reason the dollar is falling is because of a slowing U.S. economy, that’s going to offset the translation advantage. Why is the dollar going to fall? Because the U.S. economy is converging with the rest of the world, but that’s not going to be so good for the U.S. economy.”

Chandler expects the euro to continue making gains against the dollar, and it appears European PMIs are bottoming while the U.S. looks to be heading for softer growth.

“Is it just bad things in the U.S.? No, it can be good news overseas,” said Chandler. “The big theme has been the U.S. has been much stronger than Europe or Japan. Maybe the growth differential narrows.”

Julian Emanuel, head U.S. equities and derivatives strategist at BTIG, said he doesn’t think the weaker dollar is necessarily due to negative developments in the U.S. The phase one trade agreement with China and a new trade treaty with Canada and Mexico set up other parts of the world to do better economically.

“We are fully on board with the weak dollar idea. In our view, there are a number of reasons why it could happen. Primarily it’s the virtuous reason,” Emanuel said. “Basically the rest of the world is playing catch-up to us. Whether it’s because of progress on the trade war front or progress in terms of Brexit. Whatever it is, we think the spread between U.S. economic outcomes and the rest of the world’s outcomes is going to narrow.”

Emanuel said he would expect to see the dollar lose about 3% to 5% in 2020, and that slide is good for corporate earnings.

“What we have said is a 1% move in the dollar, when you’re looking at the S&P 500 is likely to cause a 30 basis point change in earnings,” he said. “If the dollar moves 3% to 5%, you could see somewhere along the lines of 1% to 1.5% tailwind to S&P 500 earnings.”

The election year is likely to be a period where the dollar weakens, and it could weaken more if there is uncertainty, such as ascension of a candidate that has policies that are unfriendly to business. The market currently perceives President Donald Trump as winning re-election, analysts say.

“The president has been very, very effective in achieving the market outcomes he’s been thinking about. He’s wanted a weaker dollar and he certainly wants it coming into the election, because a weaker dollar causes exports to be stronger, not to mention S&P 500 earnings,” Emanuel said. “The less virtuous side of this is this could be one of these things where the market assigns a greater political risk to the U.S. relative to the rest of the world, which seems to be sorting itself out.”

Emanuel said he is neutral on technology, though it should be helped by a softer dollar. He currently favors the beaten-down energy sector. “Over the long haul, energy has tended to correlate inversely to a falling dollar. It tends to outperform when the dollar is falling,” he said. “With a weaker dollar, the theory goes, the consumers of energy have more purchasing power, whether it’s U.S. exports or what have you.”

But Chandler said even the positives from a weaker dollar may not be enough to rescue the economy, and he expects more stimulus from Fed easing next year. “A weaker dollar could help make U.S. exports attractive. The U.S. only exports about 14% to 15% of GDP. It’s a small part of the economy. It won’t make up enough if the consumer really pulls back,” he said, adding the consumer is about 70% of the U.S. economy.

But if the dollar continues to fall, it could help clarify the outlook for corporate profits. Back in mid-October, Coca-Cola CFO John Murphy said that the dollar strengthened, rather than weakened as expected, and that could pose headwinds for 2020. At the time, the company reported a 6% currency headwind to earnings per share.

Murphy made the comment when Coke reported earnings, and the company will provide its full 2020 outlook in February.

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