The Dollar's Decline: Why Tech, Materials, and Industrials Are Set to Soar

The U.S. dollar is on a path of gradual decline, and this shift is set to unlock significant upside for multinational corporations in the technology, materials, and industrials sectors. With Morgan Stanley forecasting a 7% further decline in the dollar by mid-2026, the tailwinds for companies with high foreign revenue exposure are becoming too strong to ignore. This article breaks down the mechanics of this trend, the sectors positioned to benefit most, and why investors should act now.

The Currency Translation Effect: A Multibillion Dollar Tailwind

When the U.S. dollar weakens, companies with substantial foreign revenue experience a direct boost to their earnings. Here's why:
- Foreign Sales Convert to More Dollars: A weaker USD means that profits earned in stronger currencies (e.g., euros, yen, or yuan) translate into higher U.S. dollar amounts when repatriated.
- Pricing Power in Global Markets: Multinationals can raise prices in local currencies without sacrificing competitiveness, as their costs in dollars remain stable.

This effect is already baked into sector performance. Take the S&P 500, which derives 40% of its revenue from abroad. Sectors with the highest foreign exposure stand to gain the most:

Sector Spotlight: Tech, Materials, and Industrials Lead the Charge

Technology (59% Foreign Revenue)

The tech sector is the most leveraged to a weaker dollar. Giants like Apple, Microsoft, and NVIDIA generate nearly 60% of their revenue overseas, with emerging markets (EM) accounting for 17% of that total. A weaker dollar magnifies earnings from these regions, where demand for tech products is surging.

Materials (47% Foreign Revenue)

Materials companies, including miners and chemical producers, operate in globally traded markets. A weaker dollar lowers the cost of U.S. exports like agricultural commodities and industrial metals, making them more competitive abroad. The sector's 12% EM exposure also benefits as local currencies strengthen.

Industrials (32% Foreign Revenue)

Industrials, from Boeing to 3M, rely on global supply chains and infrastructure projects. A weaker dollar improves the profitability of projects in Europe and Asia, where their equipment and services are priced in stronger currencies.

Morgan Stanley's Call: S&P 500 to 6,500 by Mid-2026

Morgan Stanley's analysis ties the dollar's decline to a 5% upside for the S&P 500, with the index hitting 6,500 by mid-2026. Key drivers include:
- Translation Effects: A 7% USD decline could add ~0.5% to U.S. GDP and ~2-3% to S&P 500 earnings.
- GOP Budget Risks: The “Big Beautiful Bill” could inflate the deficit by $3.3 trillion, further weakening the dollar as investors flee government debt.
- BRICS De-Dollarization: Emerging markets are accelerating away from USD dependency, with 20% of oil trades now settled in non-dollar currencies. This reduces demand for the greenback, amplifying its decline.

Why Act Now? The Macro Backdrop is Favorable

The combination of Fed rate cuts, BRICS's push for a gold-backed “Unit” currency, and GOP fiscal policies creates a perfect storm for dollar weakness. While geopolitical risks like trade wars loom, the structural trend is clear:
- BRICS's Blockchain Push: Initiatives like the “BRICS Bridge” payment system aim to bypass SWIFT, reducing USD reliance.
- Emerging Market Resilience: EM currencies like the yuan and rouble have shown resilience, further pressuring the dollar.

Investment Strategy: Allocate to These Sectors Now

For investors, the playbook is straightforward:

1. Overweight Large-Cap Multinationals:
2. Tech: Focus on global leaders like Apple (AAPL), Microsoft (MSFT), and NVIDIA (NVDA).
3. Materials: Consider diversified giants like Dow (DOW) or Freeport-McMoRan (FCX).

4. Industrials: Boeing (BA), Caterpillar (CAT), and 3M (MMM) offer exposure to global demand.

5. Sector ETFs for Diversification:

6. Technology: XLK (Technology Select Sector SPDR Fund)
7. Materials: XLB (Materials Select Sector SPDR Fund)

8. Industrials: XLI (Industrials Select Sector SPDR Fund)

9. Hedge Against Geopolitical Risk:

10. Allocate 5-10% to gold (GLD) or BRICS equity ETFs (e.g., BKF) to offset potential volatility.

Risks to Consider

• Policy Uncertainty: U.S.-China trade tensions or sudden Fed hawkishness could delay the dollar's decline.
• BRICS Fragmentation: Internal disagreements (e.g., India's reluctance to use yuan) could slow de-dollarization.
• Earnings Misses: Companies with heavy foreign exposure must navigate currency fluctuations effectively.

Conclusion: Ride the Wave of a Weaker Dollar

The dollar's decline is a structural trend, not a temporary blip. For investors with a 1-2 year horizon, tech, materials, and industrials offer a compelling risk-reward trade. While geopolitical storms may rock markets, the tailwinds from currency translation effects, BRICS's push for alternatives, and U.S. fiscal policy are too powerful to ignore. Act now to position your portfolio for the next leg of gains.