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If the dollar weakens, the Dow could rise to 50,000, according to technical analyst JC Parets.
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Parets said the dollar is the key to making big gains in the stock market.
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“If you’re a stock market bull, you don’t want a weak dollar; you need a weak dollar.”
If the U.S. dollar breaks back down to its 2020 lows, the Dow Jones Industrial Average could rise 33% to $50,000, according to All-Star Chart founder JC Parette.
Paretz said on a recent episode of the Compound and Friends podcast that a weaker dollar is key to unlocking further gains in the stock market.
“If you’re a stock market bull and you’re betting that stocks will go up, you don’t want the dollar to be weak; you need it,” Parez said.
Savita Subramanian, a strategist at Bank of America, said a weaker U.S. dollar tends to be a tailwind for stocks because it leads to higher profits for S&P 500 companies.
“Our research shows that for every 10% decline; [in the US dollar] “All else being equal, the S&P 500 should have a ~3% return per share in currency terms,” Subramanian said. Economists at Bank of America expect the dollar to weaken by 3% on a trade-weighted basis in 2024. This will be a tailwind for corporate profits and, ultimately, stock prices.
For Parets, it’s all about the charts. The technical analyst highlighted the key levels he is watching for the U.S. dollar index, which measures the dollar’s strength against a basket of rival currencies. After hitting an 18-month low of about $100 in December, Parets believes a break below the 2020 low of about $90 would mean big gains for the stock market.
“this [chart] That’s really all that matters,” Paretz said, explaining that each time the US dollar has fallen from its peaks in 2016 and 2020, stocks have soared immediately afterward. Most recently, the S&P 500 index bottomed in October 2022, one month later. The US dollar hit a new high.
“If this chart breaks down and breaks down to its previous highs and returns to its 2020 lows, the Dow will be at $50,000 and the S&P will be at $6,000,” Parets said. If the S&P 500 rises to 6,000, it could rise 25% from current levels.
The US dollar index is hovering around the long-term support level of 100, but Paretz believes it could break, leading to a weaker US dollar. This scenario bodes well for stock market investors, coinciding with a likely rate cut by the Federal Reserve and a weaker dollar trend.
Paretz is not the only technical analyst who expects the dollar to continue to weaken. Katie Stockton, founder of Fairlead Strategies, said in a note to clients this week that while the U.S. dollar has rallied recently in response to counter-trend buy signals, the rally likely won’t last.
“It seems unlikely that the dollar will have a prolonged recovery,” Stockton said, adding that support for the dollar is in the range of $99 to $100.8.
A definitive breakdown below 99 would impact Parets’ bullish outlook for US stocks.
Read the original article on Business Insider
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