JC Parets, the inventor of All Star Charts, believes that if the US currency collapses to the levels it was in 2020, the Dow Jones Industrial Average may rise by 33 percent to $50,000.
In a recent Compound and Friends podcast episode, Parets stated that the key to realising more stock market profits is a depreciating US currency.
“If you’re a stock market bull and you’re making the bet that stocks are going to go higher, it’s not so much that you want a weaker dollar, you need a weaker dollar,” Parets stated.
As a result of increased profitability for S&P 500 businesses, a declining US dollar often supports stock prices, according to strategist Savita Subramanian of Bank of America.
According to Subramanian, “Our research indicates that, all other things being equal, every 10% decline [in the US dollar] should result in a ~3% boost to S&P 500 earnings per share via currency translation.” Bank of America economists predict that in 2024, the US currency would weaken by 3% on a trade-weighted basis, which will boost corporate earnings and, therefore, stock prices.
For Parets, the chart is everything. The technical expert indicated the critical points on the US dollar index, which gauges the strength of the greenback relative to a group of competing currencies, that he is keeping an eye on. Parets thinks the stock market would see enormous returns if it were to fall down to the 2020 lows of about 90 after reaching new 18-month lows of roughly 100 in December.
Parets stated, “This [chart] is the only thing that actually matters,” pointing out that equities rose sharply each time the US currency fell from its peak in 2016 and 2020. In more recent times, the US dollar reached its most recent peak one month after the S&P 500 reached its lowest point in October 2022.
“If this chart breaks down and breaks those former highs, and we go back down to the 2020 lows, that’s a Dow 50,000, S&P 6,000,” Parets stated. A 25% increase from current levels is possible if the S&P 500 index jumps to 6,000.
Parets believes that the US dollar index will collapse, resulting in a decline in value of the US currency, even though it is now trading close to its long-term support level of about 100. In such case,
Technical analysts other than Parets predict that the US dollar will continue to weaken in the future. In a message to clients this week, Fairlead Strategies’ CEO Katie Stockton noted that while the US dollar has lately risen higher in reaction to a counter-trend buy signal, the gain probably won’t sustain.
“It appears unlikely that the dollar will see an extended recovery,” Stockton stated, pointing out that the US currency’s support zone is between 99 and 100.8.