People have been mesmerized by the massive US stock market performance since the lows of April.
Recently, the and the have also been outperforming previous high fliers such as European stocks.
But why is this happening?
Let’s take some time to reflect on a basic concept.
Stocks go up if valuations move higher but also if earnings expectations and delivered earnings move higher.
And for US companies, these earnings are priced in .
Now, the key stands in the chart you see below.
U.S. technology stocks generate 55%+ of their earnings abroad.
And as the USD has depreciated by over 10% in a few months, this means their earnings also are priced to go up – simply as a reflection of the denumerator (the US Dollar) depreciating!
Also notice the difference with in the chart below.
As the EUR has instead rapidly appreciated, German companies’ earnings are dragged down by an excessively strong currency: and have gone up very fast, and that lowers earnings’ expectations in EUR.
When you look at stock markets, it’s always worth asking: where do companies generate revenues from?
Currencies are front and center for macro investors in 2025, and they will likely remain an important driver of returns going forward.
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