Expert: Paul Henneman - 1/6/2006

Question
Hello:

I want to thank you for the great reply. It was indeed helpful.  I probably should have reworded my question as follows: Would the stocks traded on U.S. stock markets most generally lose value for a short period of time if the dollar was reported as being weak? I know that good economical news causes stock prices to rise in value, and that negative economical situations cause stock prices to fall in value.  A report that the dollar is weak may cause stock prices to fall for a short period of time but not affect the stock markets for a long period of time.

Once again, I thank you for your willingness to help answer my question.  
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Followup To
Question -
Hello:

Does a weak dollar or a strong dollar affect stocks and stock markets? If so, how?

I thank you for your reply.
Answer -
Thank you for your question! The strength of the dollar does affect the overall health of the US economy, and that certainly affects stocks. The 'how' question is very difficult to answer here, it would take a book length write up to answer it fully. A weak or a strong dollar both affects the economy in different ways, some good and some bad. The best case is a balanced dollar in relation to foreign currencies. In very rough terms, a weak dollar means that US businesses (and consumers) have to pay more for foreign goods, but on the other had American products cost less on the international market. A strong dollar means that foreign goods cost less, but US products cost more on international markets.  The success of businesses is often in a small way tied to this strength of the dollar, and so their stock price can be affected, depending upon what type of company it is.
This is very vague and brief I realize, but the question is really too large to answer here. If I can be of any more service in regards to a more specific question, please do not hesitate to follow up with me.

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com
www.VEReports.com
www.VEInstitutional.com


Answer
Thank you for your follow up!
Unfortunately the problem of the value of the dollar is more complex than that. A weak dollar would affect some industries negatively, and others positively. It depends upon the nature of the business itself and how it connects to international trade. In very, very general terms, if a company relies heavily on exporting its products to other countries, than a weaker dollar will have a negative affect. However, so many other things affect stock price that this often is not readily apparent in the stock price itself.
I hope this helps! It is unfortunately such a large topic, and one that I do not specialize in, that it is difficult in this format to offer much more. The key for you will be to analyze what specicially a company, or entire industry, does and if there are strong international ties. If there are, then a strong or weak dollar will have an affect, but this will be different depending upon if products or services originate in the US and are exported abroad, or if the product/service originates abroad and is imported into the US.

Please do not hesitate to follow up with me if I can be of service in any other way,

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com
www.VEReports.com
www.VEInstitutional.com