US stocks won't fall sharply in 2023 like Wall Street giants expect — because the weak dollar will juice earnings, a top strategist says
- Wall Street giants like Morgan Stanley expect US stocks to crash over 20% next year.
- But Carson Group's Ryan Detrick thinks equities could rally thanks to declines in the dollar.
Wall Street's top banks are overly bearish on stocks, because the declining dollar could prop up company earnings in 2023, according to one market strategist.
"The dollar weakness that we're starting to see is something that a lot of people aren't talking about," Carson Group's Ryan Detrick told Yahoo Finance on Wednesday.
"In the next year, dollar weakness can really be a tailwind for global earnings."
The US dollar index, which tracks the greenback against a basket of six other currencies, has slipped nearly 7% over the past three months.
Markets expect the Fed to ease off on its rate-hiking campaign in 2023. When interest rates fall, a currency tends to depreciate, because investors seek higher yields elsewhere.
A weaker dollar boosts companies' revenues when they export goods and services. That could help to prop up stock market earnings next year, according to Detrick.
"40% of revenues come from overseas for the S&P 500, so a weaker dollar like we're anticipating could be a little bit of a tailwind for earnings actually coming in better than people think," he said.
Wall Street's top banks aren't so bullish on stock market earnings.
Bank of America and Morgan Stanley both said at the start of December that they're expecting companies to downgrade their targets as the threat of a recession leads to a fall in spending.
They forecast that the benchmark S&P 500 will fall as low as 3,000 points in the first quarter, which would represent a 23% plunge from its level as of Tuesday's close.
But Detrick is more optimistic. He said that a combination of the weak dollar, inflation starting to fall towards the Federal Reserve's 2% target, and the US economy managing to avoid a recession could fuel a stock market surge.
"I think I'm open to the idea that we could have a surprise rally in the first half of next year with inflation coming back and the economy not going into recession," he told Yahoo Finance.
"Everybody is bearish," Detrick added. "Markets have a funny way of surprising the masses."