Market Insights

All of a sudden, weak-dollar trades are working.

At least 26 foreign-country exchange-traded funds are outperforming the S&P 500 and Nasdaq-100 so far this year, according to TradeStation data. Producers of commodities like oil and metals, which tend to track the global economy, have also jumped. It’s a big change from 2021, when many of those groups lagged.

The rotation seems to come at an odd time because the U.S. Federal Reserve is tightening monetary policy. It’s removing stimulus twice as quickly as previously announced and signaling at least three interest-rate increases this year. Last week, it stunned the market by hinting at balance-sheet reduction.

Sentiment has been different this week. Chairman Jerome Powell said nothing new in his Senate confirmation hearing and inflation rose only slightly more than expected on Wednesday. A sharp and unexplained drop in the U.S. dollar followed. Why? Could the market suddenly thinking that the Fed is done for now? After all, policymakers have delivered a triple-dose of hawkish medicine. Now could be the time that they sit back to let the treatment take effect.

There have also been some bullish news on Europe, whose currencies form the main counterweight for the U.S. dollar index. Goldman Sachs predicted on Tuesday that Eurozone gross domestic product will expand faster than the U.S. this year and next. The forecast cited government spending as one catalyst. (In contrast, President Biden’s stimulus plan has failed in Washington.) CNBC also reported this week that European leaders are increasingly opposed to widespread economic shutdowns.

Weak Dollar Trades

A few types of stocks and exchange-traded funds (ETFs) typically benefit when the greenback falls. Producers of commodities like oil and metals often rise because their products are priced in the U.S. currency. Simple arithmetic means that a weaker dollar can increase their price in American terms.

There are also ETFs that track global stocks. These assets are priced in foreign currencies like the euro, sterling and Australian dollar. They also tend to gain value in dollar terms when their base currencies appreciate.

Below are some actively traded global stocks and ETFs that may benefit from a weak dollar. The list includes symbols averaging at least 50,000 call and put contracts per session, which may provide more liquidity in the options market.

• Tesla (TSLA): The electric-car giant generates more than half its revenue in global markets like China and Europe.
• Nio (NIO): The Shanghai-based Chinese electric-car maker rallied more than 1,000 percent in 2020, followed by a pullback last year.
• Alibaba (BABA): The Chinese e-commerce giant lost about half its value in 2021 but has rebounded since the beginning of January.
• iShares MSCI Emerging Market ETF (EEM): The fund mostly holds Asian stocks from Hong Kong, Taiwan, Korea and India.
• iShares China Large-Cap ETF (FXI): The fund holds Mainland Chinese companies listed in Hong Kong.
• Market Vectors Gold Miners ETF (GDX): The fund holds major gold mining stocks. It typically follows gold prices.
• iShares Gold Trust (GLD): The fund represents one-tenth an ounce of physical gold.
• iShares Silver Trust (SLV): The fund represents one-tenth an ounce of physical silver, which tends to follow gold.
• Taiwan Semiconductor (TSM): The world’s biggest maker of semiconductors.
• iShares Brazil ETF (EWZ): Tracks stocks in the Latin America’s biggest economy.
• Exxon Mobil (XOM): The biggest U.S. oil producer.