Much has been made of President Trump’s ‘Liberation Day’ and the resulting tariffs against US trade partners, but less attention has been paid to the implications of a weaker US Dollar. Since its peak in January, the Bloomberg Dollar Spot Index, which tracks the performance of the US Dollar versus a basket of ten leading global currencies, fell 10.6% to its trough on the 21st of April.

According to FactSet, 59% of the S&P 500 revenue is generated from US sources and 41% from international markets, which reflects how deeply embedded global exposure is within the index. On a sector basis, the greatest proportion of companies with international revenues are found in the Information Technology sector, with 56% of the revenue being generated internationally. Perhaps unsurprisingly, the lowest proportion of companies with international revenue exposure are found in the Utilities sector, only generating 1% of revenue outside of the US.

Despite a weaker US Dollar generally being seen as a signal for a weakening economy, there is a silver lining in the form of the currency translation effect. Many companies within the S&P 500 are multinational, with subsidiaries around the world. These subsidiaries generate earnings in their local currencies, which are then sent back to the parent company. The advantage of a weaker US Dollar comes into play when these earnings are converted into US Dollars. With the weaker Dollar, the company receives more Dollars than it would have in previous periods, leading to an increase in earnings due to the currency movement. Although investors often discount currency effects when evaluating core operations, persistent positive currency effects can enhance earnings.

The positive currency impact associated with a weaker Dollar doesn’t stop at earnings, it also extends to the balance sheet. Take Anheuser-Busch InBev: the global beverage company generates a substantial portion of its profits in emerging markets with volatile currencies, yet most of its debt is denominated in US Dollars. A weakening Dollar eases the burden of paying back this debt, allowing the company to speed up its repayments, in addition to freeing up cash for other capital expenditures.