Europe’s weak currency a tailwind for markets

Wall Street’s recent meltdown has much to do with worries that the stronger dollar and Europe’s economic slowdown could hurt corporate America, as investors look to next week, when the third-quarter earnings season begins in earnest.

But the dollar’s strength against the euro could be among the few positive factors at play for Europe, given the region’s weaker currency should boost its exports, just as the softer dollar helped boost portions of the U.S. economy when it was mired in recession.

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“The weaker the euro gets, the more competitive Europe is in the global economy,” said Art Hogan, chief market strategist at Wunderlich Securities.

“With the weaker euro, there should be some stabilization with exports from Europe; like the U.S. with a weaker dollar coming out of the recovery, it helped our growth and got us back on track to some degree. So from a timing perspective, it’s a good thing for European companies,” said James Liu, global market strategist at J.P. Morgan Funds.

“European companies should benefit from this, so markets in Europe have a tailwind,” Liu added.

“The dollar will be negative for some of the larger companies with global operations, but most have protected themselves from currency swings, so it’s likely to be more of an excuse” as opposed to an actual reason, said Kate Warne, investment strategist at Edward Jones.

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But one scenario investors may not be paying enough attention to is, “if we do expect it (the stronger dollar) to dampen U.S. earnings, then it should also mean potentially stronger earnings for some of the European companies; that may be the opportunity in all of this. Investors might want to take advantage of the stronger dollar to add European companies,” Warne said.

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