August 13, 2015
After a summer of few market changes the Chinese government has thrice devalued its currency setting off market declines around the world. Investors fear that U.S. currency will increase, resulting in a standstill for our economy and the end of the bull market. We view this forecast as an over-reaction.
The Yuan may have been purposely undervalued in the early 2000’s, but in the last 10 years, it has appreciated over 25% compared to the U.S. dollar, making the latest changes rather minimal. Although a weaker Chinese Yuan will result in a stronger U.S. dollar, the de-evaluation has not moved the dollar meaningfully higher so far. Chinese manufacturers are the big winners hoping to sell more goods abroad. U.S. Manufacturers may be hurt competitively and U.S. consumers may enjoy cheaper Chinese imports.
U.S. corporations have continued to grow despite the dollar reaching a competitive peak in March. When we analyze the most recent revenue trends for our holdings, we almost always see positive growth when adjusted for the dollar’s strength. By focusing on local currency revenue growth we can see that economic growth has continued. Such adjustments show that the stronger U.S. dollar has already made its mark on our economy without slowing demand.
The way these factors are affecting the markets is really just to create headlines. The S&P 500 is currently down 0.9% for the month, and up 1.3% for the year, a flat year for most at best! As wealth managers we are constantly focusing on market analysis and investment opportunities for our clients. At this point we view the recent pullback in the stock market as more of a buying opportunity in the later stages of this economic cycle and will continue to monitor world markets.