Connect with us


US dollar weakness should reinforce the blossoming rally in cyclical stocks

US dollar weakness should reinforce the blossoming rally in cyclical stocks



We were recently joined by clients for a discussion about global investment opportunities, in the context of technically overbought conditions in US stocks. In this blog, we share our views regarding where we see risks and opportunities in international markets.

From a valuation perspective, in which regions and countries do you see the most risk and opportunity? Where do the US and Canada fit into that valuation spectrum?

Following a high-velocity selloff and subsequent v-shaped rebound, US stocks have surprisingly clung to their status as one of, if not the most overvalued market segments of the developed world. Indeed, US and developed market price-to-sales (P/S) ratios are trading at notable premia relative to the global benchmark and history. In our view, unprecedented policy support has encouraged extreme risk taking by investors, a consequence of which has been frothy valuations in US stocks.

At the other end of the valuation spectrum, structural underperformance from Chinese and emerging market (EM) stocks – until recently – has compressed their P/S ratios to deep discounts compared to the world-wide stock market and history. Clearly, Europe and Canada are developed economic regions. However, European and Canadian stocks currently trade at discounts like those of Chinese and EM stocks.

While valuation is a good starting point for an investment thesis, it isn’t enough on its own. Indeed, cheap valuations require catalysts to unleash the potential opportunities embedded in share prices. On that score, leading indicators of business activity across the emerging world – China and South Korea in particular – have been proving more resilient than those of the developed world, including the US, Europe, Japan and Canada.

We believe compelling opportunities exist for investors in EM stocks at a time when many emerging economies – especially Asia excluding Japan – are recovering from the virus-related “sudden stop” in activity. Attractive valuations and improving economic growth may be the right combination for unlocking the potential rewards presented by EM stocks. So far, so good.

Figures 1 & 2. Not all regions and countries are made equal. For selectivity, we prefer targeting low valuations and faster growth over high valuations and slower growth both across and within regions.

Source: Bloomberg L.P., Haver, Invesco, 07/01/20. Notes: Circled indices represent low valuations and faster growth. P/S = Price-to-sales ratio. Ranked from left to right—from highest premium to lowest discount. ACWI = All Country World Index. EU = European Union. EU Excluding UK Composite PMI = France, Germany, Ireland, Italy and Spain. Diffusion indices have the properties of leading indicators, and are convenient summary measures showing the prevailing direction and scope of change*. An investment cannot be made in an index. Past performance does not guarantee future results.

US companies are highly exposed to international markets. Don’t US stocks provide investors with enough international diversification?

Contrary to popular belief, US companies aren’t the most globally exposed. In fact, they have the lowest international exposure – capturing 39% of total revenues – of all the major developed markets that we follow. Some may be surprised to learn that French companies’ international revenues represent a whopping 82% of their total revenues!1

Admittedly, it’s difficult to determine how much international exposure an investor should have without knowing several things about them, including their risk tolerance, goals, life stage, and planned retirement date.

That said, there’s a simple way of assessing whether investors own enough international stocks. In our view, the weight of the MSCI USA Index in the MSCI All Country World Index (ACWI) is a good starting point for benchmarking your international diversification. US stocks capture 58% of the global equity benchmark, which means that non-US stocks capture 42% of the worldwide stock market.2

Many investors are surprised to learn that non-US equities represent almost half of a passively indexed global equity portfolio, represented by the MSCI ACWI. Moreover, what they thought was a generous allocation to international stocks – typically 25% – is far below the entire universe of stocks.

As aggressive as it may seem, in our view, setting international equity allocations equal to their weight in the global benchmark would express a neutral stance on the asset class.

Figures 3 & 4. US companies have the lowest international exposure of all the major developed markets

Source: FactSet, Invesco, 07/17/20. Notes: An investment cannot be made in an index. Past performance does not guarantee future results.

Looking back, what was the cost of the shutdown, and how might it have impacted second-quarter S&P 500 earnings?

While it may seem like a daunting task to quantify the earnings impact of COVID-19 and the related cost of the shutdown, we think it’s possible.

First, we need a baseline for second-quarter 2020 S&P 500 trailing 12-month operating earnings per share (EPS), which we assume to be $121. Next, we require a weekly earnings number ($121/52 = $2.32).

Then, we must guess how many companies were shut down. Obviously, all companies weren’t idle during the virus-related shutdown. In fact, some firms benefitted tremendously in the health care, consumer staples, technology, and communications sectors. We naively assume half of firms were idle ($2.32/2 = $1.16).

For the final step, we erode the baseline by the lost earnings of those companies over a 12-week shutdown ($1.16*12 = $14). In other words, we suspect second-quarter 2020 S&P 500 earnings may have been $14 lower than analysts believe, which would equate to $107 or a 31% decline from year-ago levels.

Figure 5. We suspect 2Q20 S&P 500 earnings may have been $14 lower than analysts believe

Source: Standard & Poor’s, Invesco, 07/17/20. Notes: Operating earnings per share = Income from product (goods and services), excluding corporate (M&A, financing and layoffs) and unusual items, divided by total shares outstanding. Earnings are priced in US dollars. An investment cannot be made in an index.

While this approach is simplistic, it’s worth noting second-quarter 2020 S&P 500 operating EPS settled at $139 or -9% year-over-year, just $3 below our simulation of $142 or -7% year-over-over. As we anticipated, it seems a broad market earnings recession began in 1Q20, which we expect to be followed by much deeper decreases in coming quarters.3

Despite the popularity of earnings, we underscore that they’re quarterly, lagging variables whereas stocks are real-time financial market variables and leading economic indicators that get ahead of fundamentals by a good 3-6 months. Said differently, scrutinizing second quarter earnings – when we’re already in the third quarter – is akin to driving a car forward while looking in the rearview mirror.

Where do you see materials and commodities going during these COVID-19 times?

We expect materials stocks to outperform the broader market, given synchronized central bank support. For example, the Federal Reserve (Fed) has embarked on a seemingly open-ended commitment to continue buying securities until the economic and labor market outlooks improve substantially.

An important consequence of the Fed’s unprecedented balance sheet expansion is the weakness of the US dollar, which should reinforce the blossoming rally in cyclical stocks through foreign exposure/sales, Rest of the World (RoW) profits, positive translation effects and increased competitiveness. In other words, US goods and services become cheaper when the currency depreciates.

If quantitative easing (QE) represents a choice between interest rates and the US dollar, the Fed has opted to save growth and jobs by loosening the monetary screws and inflating the money supply at the expense of the currency. From that perspective, it’s reasonable to expect the US dollar to weaken further if the Fed keeps such an abundant supply of currency in circulation.

In turn, the US dollar is inversely related to the relative performance of the materials sector, the fundamental link being foreign exposure. According to Standard & Poor’s, materials companies relied on foreigners for 57% of their total sales in 2018, second only to information technology at 58%.

US dollar weakness helps US-based materials companies be more competitive on the world economic stage. Dollar depreciation augments the value of foreign sales (denominated in strengthening currencies) when they’re translated to the home currency.

The flipside of US dollar weakness is commodity price strength. Indeed, early-stage commodities have been on an upward track, supporting a positive view of the materials sector. Commodity prices – barometers of materials companies’ input and/or output prices – are key drivers of materials stocks. The CRB BLS Raw Industrials Sub-Index is a good gauge of basic commodities close to the early stages of the production process. As such, they’re among the first to respond to changes in global economic activity.

Our positive view of materials stocks depends on whether the global economic recovery gathers pace. Should the economy suffer a relapse, it would likely be difficult for materials stocks to continue outperforming. If the US dollar keeps weakening alongside forceful blasts of QE from the major central banks, materials stocks should continue to benefit. Indeed, standing in the way of size buyers like the Fed has been an unprofitable strategy in the past.

Figures 6 & 7. The flipside of policy-induced currency weakness is commodities and materials strength.

Source: Bloomberg L.P., Invesco, 07/17/20. Notes: USD = US dollar. The broad currency index is a weighted average of the foreign exchange value of the US dollar against the currencies of a broad group of major US trading partners. CRB = Commodity Research Bureau. BLS = Bureau of Labor Statistics. The CRB BLS Raw Industrials Sub-Index measures the prices of burlap, copper scrap, cotton, hides, lead scrap, print cloth, rosin, rubber, steel scrap, tallow, tin, wool tops and zinc. Commodities and stocks are priced in USD. An investment cannot be made in an index. Past performance does not guarantee future results.


1. FactSet, 07/17/20

2. MSCI, 07/17/20.

3. Standard & Poor’s, 07/17/20.


A P/S ratio is the market capitalization of a given country or region divided by its total revenues.

The MSCI USA Index is designed to measure large and mid market capitalization stocks in the United States.

The MSCI ACWI is designed to measure large and mid market capitalization stocks in the developed and emerging markets.

QE is a form of unconventional monetary policy where a central bank makes large scale asset purchases in order to increase the money supply and encourage lending and investment.

The CRB BLS Raw Industrials Sub-Index measures the prices of burlap, copper scrap, cotton, hides, lead scrap, print cloth, rosin, rubber, steel scrap, tallow, tin, wool tops and zinc.

Important Information

Blog Header Image: Javier Garcia / Unsplash

The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

To the extent the fund invests a greater amount in any one sector or industry, there is increased risk to the fund if conditions adversely affect that sector or industry.

Commodities may subject an investor to greater volatility than traditional securities such as stocks and bonds and can fluctuate significantly based on weather, political, tax, and other regulatory and market developments. 

All investing involves risk, including risk of loss.

A decision as to whether, when and how to use options involves the exercise of skill and judgment and even a well conceived option transaction may be unsuccessful because of market behavior or unexpected events. The prices of options can be highly volatile and the use of options can lower total returns.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.

The opinions referenced above are those of the authors as of August 3, 2020. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations. This does not constitute a recommendation of any investment strategy or product for a particular investor. The opinions expressed are those of the authors, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

Read More

Continue Reading


Analyst reviews Apple stock price target amid challenges

Here’s what could happen to Apple shares next.



They said it was bound to happen.

It was Jan. 11, 2024 when software giant Microsoft  (MSFT)  briefly passed Apple  (AAPL)  as the most valuable company in the world.

Microsoft's stock closed 0.5% higher, giving it a market valuation of $2.859 trillion. 

It rose as much as 2% during the session and the company was briefly worth $2.903 trillion. Apple closed 0.3% lower, giving the company a market capitalization of $2.886 trillion. 

"It was inevitable that Microsoft would overtake Apple since Microsoft is growing faster and has more to benefit from the generative AI revolution," D.A. Davidson analyst Gil Luria said at the time, according to Reuters.

The two tech titans have jostled for top spot over the years and Microsoft was ahead at last check, with a market cap of $3.085 trillion, compared with Apple's value of $2.684 trillion.

Analysts noted that Apple had been dealing with weakening demand, including for the iPhone, the company’s main source of revenue. 

Demand in China, a major market, has slumped as the country's economy makes a slow recovery from the pandemic and competition from Huawei.

Sales in China of Apple's iPhone fell by 24% in the first six weeks of 2024 compared with a year earlier, according to research firm Counterpoint, as the company contended with stiff competition from a resurgent Huawei "while getting squeezed in the middle on aggressive pricing from the likes of OPPO, vivo and Xiaomi," said senior Analyst Mengmeng Zhang.

“Although the iPhone 15 is a great device, it has no significant upgrades from the previous version, so consumers feel fine holding on to the older-generation iPhones for now," he said.

A man scrolling through Netflix on an Apple iPad Pro. Photo by Phil Barker/Future Publishing via Getty Images.

Future Publishing/Getty Images

Big plans for China

Counterpoint said that the first six weeks of 2023 saw abnormally high numbers with significant unit sales being deferred from December 2022 due to production issues.

Apple is planning to open its eighth store in Shanghai – and its 47th across China – on March 21.

Related: Tech News Now: OpenAI says Musk contract 'never existed', Xiaomi's EV, and more

The company also plans to expand its research centre in Shanghai to support all of its product lines and open a new lab in southern tech hub Shenzhen later this year, according to the South China Morning Post.

Meanwhile, over in Europe, Apple announced changes to comply with the European Union's Digital Markets Act (DMA), which went into effect last week, Reuters reported on March 12.

Beginning this spring, software developers operating in Europe will be able to distribute apps to EU customers directly from their own websites instead of through the App Store.

"To reflect the DMA’s changes, users in the EU can install apps from alternative app marketplaces in iOS 17.4 and later," Apple said on its website, referring to the software platform that runs iPhones and iPads. 

"Users will be able to download an alternative marketplace app from the marketplace developer’s website," the company said.

Apple has also said it will appeal a $2 billion EU antitrust fine for thwarting competition from Spotify  (SPOT)  and other music streaming rivals via restrictions on the App Store.

The company's shares have suffered amid all this upheaval, but some analysts still see good things in Apple's future.

Bank of America Securities confirmed its positive stance on Apple, maintaining a buy rating with a steady price target of $225, according to

The firm's analysis highlighted Apple's pricing strategy evolution since the introduction of the first iPhone in 2007, with initial prices set at $499 for the 4GB model and $599 for the 8GB model.

BofA said that Apple has consistently launched new iPhone models, including the Pro/Pro Max versions, to target the premium market. 

Analyst says Apple selloff 'overdone'

Concurrently, prices for previous models are typically reduced by about $100 with each new release. 

This strategy, coupled with installment plans from Apple and carriers, has contributed to the iPhone's installed base reaching a record 1.2 billion in 2023, the firm said.

More Tech Stocks:

Apple has effectively shifted its sales mix toward higher-value units despite experiencing slower unit sales, BofA said.

This trend is expected to persist and could help mitigate potential unit sales weaknesses, particularly in China. 

BofA also noted Apple's dominance in the high-end market, maintaining a market share of over 90% in the $1,000 and above price band for the past three years.

The firm also cited the anticipation of a multi-year iPhone cycle propelled by next-generation AI technology, robust services growth, and the potential for margin expansion.

On Monday, Evercore ISI analysts said they believed that the sell-off in the iPhone maker’s shares may be “overdone.”

The firm said that investors' growing preference for AI-focused stocks like Nvidia  (NVDA)  has led to a reallocation of funds away from Apple. 

In addition, Evercore said concerns over weakening demand in China, where Apple may be losing market share in the smartphone segment, have affected investor sentiment.

And then ongoing regulatory issues continue to have an impact on investor confidence in the world's second-biggest company.

“We think the sell-off is rather overdone, while we suspect there is strong valuation support at current levels to down 10%, there are three distinct drivers that could unlock upside on the stock from here – a) Cap allocation, b) AI inferencing, and c) Risk-off/defensive shift," the firm said in a research note.

Related: Veteran fund manager picks favorite stocks for 2024

Read More

Continue Reading


Major typhoid fever surveillance study in sub-Saharan Africa indicates need for the introduction of typhoid conjugate vaccines in endemic countries

There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high…



There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high burden combined with the threat of typhoid strains resistant to antibiotic treatment calls for stronger prevention strategies, including the use and implementation of typhoid conjugate vaccines (TCVs) in endemic settings along with improvements in access to safe water, sanitation, and hygiene.

Credit: IVI

There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high burden combined with the threat of typhoid strains resistant to antibiotic treatment calls for stronger prevention strategies, including the use and implementation of typhoid conjugate vaccines (TCVs) in endemic settings along with improvements in access to safe water, sanitation, and hygiene.


The findings from this 4-year study, the Severe Typhoid in Africa (SETA) program, offers new typhoid fever burden estimates from six countries: Burkina Faso, Democratic Republic of the Congo (DRC), Ethiopia, Ghana, Madagascar, and Nigeria, with four countries recording more than 100 cases for every 100,000 person-years of observation, which is considered a high burden. The highest incidence of typhoid was found in DRC with 315 cases per 100,000 people while children between 2-14 years of age were shown to be at highest risk across all 25 study sites.


There are an estimated 12.5 to 16.3 million cases of typhoid every year with 140,000 deaths. However, with generic symptoms such as fever, fatigue, and abdominal pain, and the need for blood culture sampling to make a definitive diagnosis, it is difficult for governments to capture the true burden of typhoid in their countries.


“Our goal through SETA was to address these gaps in typhoid disease burden data,” said lead author Dr. Florian Marks, Deputy Director General of the International Vaccine Institute (IVI). “Our estimates indicate that introduction of TCV in endemic settings would go to lengths in protecting communities, especially school-aged children, against this potentially deadly—but preventable—disease.”


In addition to disease incidence, this study also showed that the emergence of antimicrobial resistance (AMR) in Salmonella Typhi, the bacteria that causes typhoid fever, has led to more reliance beyond the traditional first line of antibiotic treatment. If left untreated, severe cases of the disease can lead to intestinal perforation and even death. This suggests that prevention through vaccination may play a critical role in not only protecting against typhoid fever but reducing the spread of drug-resistant strains of the bacteria.


There are two TCVs prequalified by the World Health Organization (WHO) and available through Gavi, the Vaccine Alliance. In February 2024, IVI and SK bioscience announced that a third TCV, SKYTyphoid™, also achieved WHO PQ, paving the way for public procurement and increasing the global supply.


Alongside the SETA disease burden study, IVI has been working with colleagues in three African countries to show the real-world impact of TCV vaccination. These studies include a cluster-randomized trial in Agogo, Ghana and two effectiveness studies following mass vaccination in Kisantu, DRC and Imerintsiatosika, Madagascar.


Dr. Birkneh Tilahun Tadesse, Associate Director General at IVI and Head of the Real-World Evidence Department, explains, “Through these vaccine effectiveness studies, we aim to show the full public health value of TCV in settings that are directly impacted by a high burden of typhoid fever.” He adds, “Our final objective of course is to eliminate typhoid or to at least reduce the burden to low incidence levels, and that’s what we are attempting in Fiji with an island-wide vaccination campaign.”


As more countries in typhoid endemic countries, namely in sub-Saharan Africa and South Asia, consider TCV in national immunization programs, these data will help inform evidence-based policy decisions around typhoid prevention and control.




About the International Vaccine Institute (IVI)
The International Vaccine Institute (IVI) is a non-profit international organization established in 1997 at the initiative of the United Nations Development Programme with a mission to discover, develop, and deliver safe, effective, and affordable vaccines for global health.

IVI’s current portfolio includes vaccines at all stages of pre-clinical and clinical development for infectious diseases that disproportionately affect low- and middle-income countries, such as cholera, typhoid, chikungunya, shigella, salmonella, schistosomiasis, hepatitis E, HPV, COVID-19, and more. IVI developed the world’s first low-cost oral cholera vaccine, pre-qualified by the World Health Organization (WHO) and developed a new-generation typhoid conjugate vaccine that is recently pre-qualified by WHO.

IVI is headquartered in Seoul, Republic of Korea with a Europe Regional Office in Sweden, a Country Office in Austria, and Collaborating Centers in Ghana, Ethiopia, and Madagascar. 39 countries and the WHO are members of IVI, and the governments of the Republic of Korea, Sweden, India, Finland, and Thailand provide state funding. For more information, please visit



Aerie Em, Global Communications & Advocacy Manager
+82 2 881 1386 |

Read More

Continue Reading


US Spent More Than Double What It Collected In February, As 2024 Deficit Is Second Highest Ever… And Debt Explodes

US Spent More Than Double What It Collected In February, As 2024 Deficit Is Second Highest Ever… And Debt Explodes

Earlier today, CNBC’s…



US Spent More Than Double What It Collected In February, As 2024 Deficit Is Second Highest Ever... And Debt Explodes

Earlier today, CNBC's Brian Sullivan took a horse dose of Red Pills when, about six months after our readers, he learned that the US is issuing $1 trillion in debt every 100 days, which prompted him to rage tweet, (or rageX, not sure what the proper term is here) the following:

We’ve added 60% to national debt since 2018. Germany - a country with major economic woes - added ‘just’ 32%.   

Maybe it will never matter.   Maybe MMT is real.   Maybe we just cancel or inflate it out. Maybe career real estate borrowers or career politicians aren’t the answer.

I have no idea.  Only time will tell.   But it’s going to be fascinating to watch it play out.

He is right: it will be fascinating, and the latest budget deficit data simply confirmed that the day of reckoning will come very soon, certainly sooner than the two years that One River's Eric Peters predicted this weekend for the coming "US debt sustainability crisis."

According to the US Treasury, in February, the US collected $271 billion in various tax receipts, and spent $567 billion, more than double what it collected.

The two charts below show the divergence in US tax receipts which have flatlined (on a trailing 6M basis) since the covid pandemic in 2020 (with occasional stimmy-driven surges)...

... and spending which is about 50% higher compared to where it was in 2020.

The end result is that in February, the budget deficit rose to $296.3 billion, up 12.9% from a year prior, and the second highest February deficit on record.

And the punchline: on a cumulative basis, the budget deficit in fiscal 2024 which began on October 1, 2023 is now $828 billion, the second largest cumulative deficit through February on record, surpassed only by the peak covid year of 2021.

But wait there's more: because in a world where the US is spending more than twice what it is collecting, the endgame is clear: debt collapse, and while it won't be tomorrow, or the week after, it is coming... and it's also why the US is now selling $1 trillion in debt every 100 days just to keep operating (and absorbing all those millions of illegal immigrants who will keep voting democrat to preserve the socialist system of the US, so beloved by the Soros clan).

And it gets even worse, because we are now in the ponzi finance stage of the Minsky cycle, with total interest on the debt annualizing well above $1 trillion, and rising every day

... having already surpassed total US defense spending and soon to surpass total health spending and, finally all social security spending, the largest spending category of all, which means that US debt will now rise exponentially higher until the inevitable moment when the US dollar loses its reserve status and it all comes crashing down.

We conclude with another observation by CNBC's Brian Sullivan, who quotes an email by a DC strategist...

.. which lays out the proposed Biden budget as follows:

The budget deficit will growth another $16 TRILLION over next 10 years. Thats *with* the proposed massive tax hikes.

Without them the deficit will grow $19 trillion.

That's why you will hear the "deficit is being reduced by $3 trillion" over the decade.

No family budget or business could exist with this kind of math.

Of course, in the long run, neither can the US... and since neither party will ever cut the spending which everyone by now is so addicted to, the best anyone can do is start planning for the endgame.

Tyler Durden Tue, 03/12/2024 - 18:40

Read More

Continue Reading