Why markets should love the strong dollar

The strong dollar has been the bane of equity markets, placing pressure on earnings. But Simon Laing, head of US equities at Invesco Perpetual, argues investors need to look back at the 1980s, when markets soared alongside the dollar’s strength, for investment inspiration

The strong dollar has been the bane of equity markets, placing pressure on earnings. But Simon Laing, head of US equities at Invesco Perpetual, argues investors need to look back at the 1980s, when markets soared alongside the dollar's strength, for investment inspiration.

August was another strong month for the US equity market, as the S&P 500 rose 4% (and broke through the 2000 level). With earnings growth for 2014 looking as if it will come in as mid-to high single-digit growth, and the year-to-date equity market performance up circa 8%, further progress from these levels requires a price-to-earnings expansion. After last year's substantial step up in valuation, many investors would not have wanted to rely on this. However, strategy work by FranÇois Trahan at research group Cornerstone Macro put forward an intriguing argument for further market multiple...