Dollar Strong, Stocks Creep Higher as Second Trump Term Dawns

As Donald Trump prepares to assume the presidency for a second term, investors are keeping a close eye on the U.S. dollar and its potential impact on stock market performance. The U.S. dollar has been on a strengthening trend since 2021, reaching multi-year highs in 2024. This trend is expected to continue in 2025, with the dollar gaining against major peer currencies and emerging markets. The fourth quarter of 2024 saw an especially sharp appreciation, marking the biggest rally in nearly a decade.

The strong U.S. dollar has historically had a slight positive correlation with the S&P 500 Index, with about 40% of the time, the S&P going up when the dollar's value rises. However, the impact of a strong dollar on individual stocks in an investor's portfolio depends on the specific business models and international exposure of the companies involved.

Companies that rely heavily on imported raw materials, energy, or commodities to make money are particularly vulnerable to a strengthening dollar. A strong dollar increases the cost of these inputs, putting pressure on profit margins and bottom lines. Conversely, companies that sell their products globally thrive when the dollar is weak, as their products become more affordable to foreign buyers.



Trump's second-term policies could influence the U.S. dollar's strength and, in turn, stock market performance. His proposed tax cuts and deregulation policies could boost economic growth and corporate earnings, leading to higher stock prices. Additionally, a significant infrastructure plan could stimulate economic growth and increase demand for U.S. goods and services, further strengthening the U.S. dollar.

However, Trump's trade policies, including tariffs and renegotiated trade agreements, could have mixed effects on the stock market. While tariffs can increase the cost of imports and potentially lead to higher inflation, they can also benefit U.S. companies by making their products more competitive in the global market. Furthermore, geopolitical risks associated with Trump's foreign policy and immigration policies could also impact the U.S. dollar's strength and stock market performance.

Investors should be aware of the potential risks associated with a strengthening dollar and consider diversifying their portfolios, hedging against currency fluctuations, and investing in companies with low foreign exposure or strong global brands to mitigate these risks. By staying informed about Trump's policies and their potential impact on the U.S. dollar and stock market performance, investors can make more informed decisions and better navigate the volatile market landscape.