USD strength saving foreign stock investors

on Nov 2, 2022
  • S&P 500 is down 19% this year, but USD index is up 16.5%
  • This has shielded foreign investors from losses, with USD strength masking S&P 500 decline
  • JPY investors nearly positive, GBP down 7%, EUR down 8%

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Red numbers. Red numbers, everywhere you look.

That is the story of 2022. Unless, of course, you are talking about the US dollar.

I have written extensively about the dollar’s ludicrous strength this year, including a piece on why it is so strong, and how it makes perfect sense as the world fights all this uncertainty. In this piece, however, I want to demonstrate how the dollar’s strength has helped shield the blow for investors from further afield – like me, hailing from Ireland, part of the eurozone.

First, let’s dop a quick recap of quite how much the dollar has flexed on the opposition this year. A picture says a thousand words and all that, so here we go:

OK. Dollar strong, we get it.

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But it’s so strong that it has made some bad investments look good, by the fact that those bad investments are denominated in dollars.

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Take the S&P 500, widely seen as a proxy for the US stock market. Down 19% this year, investors have been getting beaten up on the daily for close to 10 months now. But let’s look at how the perspective changes when you flip the returns to local currencies.

The chart below presents the S&P 500 in green, showing its nasty decline. But with S&P denominated in USD, for investors who placed foreign currencies into it, the pain hasn’t been so severe – more a mild hangover than a serious sickness, so to say.

Perhaps it is clearer to present this in the below format. This chart shows the annual returns of the S&P 500 in foreign currencies:

If you’re Japanese, you’re almost in the green! Meanwhile in the UK, if Lizz Truss was perhaps allowed hang on a little longer (deep dive on the terror she caused here), then perhaps that pound/dollar parity could have pushed the US-leaning Brits into positive territory.

For me, I’m down about 8% this year in euro terms. That isn’t pretty, but it does help soften the blow compared to assessing it in dollar terms. This doesn’t change the fact that the market has been torrid, and the US dollar remains the world’s reserve currency (for reasons I previously explained here).

But it really is incredible quite how stout the dollar has been that even in this dire environment for risk assets, it has pushed the S&P 500 into only minor losses in several currencies. Of course, for us euro folk going on holiday in dollar countries, it hurts the bank balance, but seeing the dollar is quite simply carrying the S&P 500 on its back.

But hey, as I say, the dollar is the world’s reserve currency and investments should be assessed on that fact. I have published my investments back into the market over the last month or two, despite my pessimistic feelings heading into winter, and a lot of it is due to the scale of the decline in dollar terms.  

Still, for foreign investors who have expenses in foreign currencies, earn a salary in a foreign currency, and live their lives in a foreign currency, it is important to remember that returns really haven’t been that bad when converted back over.

At least, that is what I tell myself as I cry to sleep each night while staring at my portfolio.


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