- The Dow Jones could soar to 50,000 points if the US dollar weakens, according to technical analyst JC Parets.
- Parets said the dollar is key to unlocking massive gains in the stock market.
- "If you're a stock market bull... it's not so much that you want a weaker dollar, but that you need a weaker dollar."
He Dow Jones Industrial Average could soar 33% to 50,000 if the US dollar falls to its 2020 lows, according to All Star Charts founder JC Parets.
Parets said in a recent episode of the Compound and Friends podcast that a weaker US dollar is key to unlocking greater gains in the stock market.
"If you're a stock market bull and you're making the bet that stocks are going to go up, it's not so much that you want a weaker dollar, it's that you need a weaker dollar," Parets said.
A falling US dollar tends to be a tailwind for stock prices because it leads to higher profits for companies. S&P 500 according to Savita Subramanian, strategist at Bank of America.
"Our work suggests that every 10% drop [in the US dollar] should translate into a ~3% benefit to S&P 500 earnings per share through currency conversion, all else equal," Subramanian said. Economists at Bank of America expect the US dollar to depreciate 3% on a trade-weighted basis in 2024, representing a tailwind for corporate profits and therefore share prices.
For Parets, the important thing is the graph. The technical analyst highlighted key levels he is monitoring in the US dollar index, which measures the dollar's strength against a basket of rival currencies. After hitting new 18-month lows in December of around 100, Parets believes a drop to 2020 lows of around 90 would mean huge gains for the stock market.
All stellar graphics
"This [chart] is the only thing that really matters," Parets said, explaining that every time the US dollar fell from its peak in 2016 and 2020, stocks rose shortly after. More recently, the S&P 500 bottomed in October 2022, a month later The US dollar reached its latest peak.
"If this chart breaks down and breaks those previous highs, and we get back to the 2020 lows, that's a Dow 50,000, S&P 6,000," Parets said. A jump to 6,000 for the S&P 500 represents a potential 25% gain from current levels.
While the US Dollar Index hovers around its long-term support level of around 100, Parets believes it will plunge, leading to a weakening of the US dollar. That scenario would bode well for stock market investors and would coincide with a time when The Federal Reserve is likely to lower interest rates. which tends to weaken the dollar.
Parets is not the only technical analyst who sees US dollar weakness persisting into the future. In a note to clients this week, Fairlead Strategies founder Katie Stockton said that while the US dollar has recently risen in reaction to a counter-trend buy signal, the rally likely won't last.
"A prolonged recovery for the dollar seems unlikely," Stockton said, noting that he sees a range of support for the US dollar between 99 and 100.8.
A decisive drop below 99 would favor Parets' victory. bullish outlook for US stocks.
