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- The 3 areas of the stock market to buy as the dollar continues to plummet, Morgan Stanley says</p>
<p>Samuel O'Brient July 2, 2025 at 9:37 PM</p>
<p>ANGELA WEISS/AFP via Getty Images -</p>
<p>The US dollar has tumbled this year, with the GOP budget bill threatening more declines.</p>
<p>But Morgan Stanley sees the move in the dollar as a likely tailwind for the stock market.</p>
<p>The bank sees it as a positive catalyst for companies in four sectors of the market.</p>
<p>The dollar just wrapped up its worst half of a year since 1973, but the US currency's loss might be the stock market's gain.</p>
<p>Morgan Stanley predicts that the dollar will continue depreciating throughout the year but it views this trend as a "substantial, under-appreciated tailwind" for stocks, one that could drive fresh earnings growth.</p>
<p>It also laid out four sectors of the stock market the are set to benefit most from the dollar's string of declines.</p>
<p>"The dollar is currently down approximately 11% from the January highs and is expected to fall another 7% by mid-2026 providing a substantial boost for multinational earnings," analyst Michelle Weaver said in a recent note.</p>
<p>In Morgan Stanley's thesis, the key tailwind for stocks is companies with high exposure to foreign sales. A weaker US dollar makes currency conversions more favorable for overseas customers and makes US goods more attractive.</p>
<p>Weaver also highlighted the translation effect, in which such companies can "earn a premium when exchanging revenues earned in foreign currencies into USD," which does not apply to competitors who only sell in the US.</p>
<p>This creates an environment in which larger cap stocks are well-positioned to benefit. The note adds that the S&P 500, composed of the largest publicly traded US companies, typically derives roughly 40% its revenue from abroad. By contrast, the small-cap Russell 2000 sees about 22% of its revenue from overseas sales.</p>
<p>"We have a broad preference for large-cap stocks given their higher-quality balance sheets, stronger pricing power, and stronger supplier negotiation power — the dollar dynamic further supports this view," she noted.</p>
<p>For investors looking for specific sectors to focus on, Morgan Stanley has highlighted those with the highest foreign revenue exposure.</p>
<p>First on the list is tech, which boasts more than 50%. The materials sector is next, with just over 40% exposure, followed by industrials, with 30%.</p>
<p>Tech makes up the largest portion of the S&P 500, accounting for more than 30% of the benchmark index. That's likely part of why Morgan Stanley predicts it will rise even more as the dollar declines.</p>
<p>As the bank said in a separate report this week, upward earnings revisions are the stock market's secret weapon for hitting new highs.</p>
<p>"Morgan Stanley expects the S&P 500 to end the year at 6,500, implying a gain of about 5% from current record levels. With analysts growing more bullish on corporate earnings, the outlook points to a potentially sustainable growth trajectory."</p>
<p>The "Big Beautiful Bill" that's moving through Congress is also expected to increase the national deficit by as much as $3.3 trillion, which could push the US dollar down even further.</p>
<p>on Business Insider</p>
Source: AOL Money
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