Why Apparel Retailers Moved Higher On Trump's Comments About The Dollar

Retail stocks were moving higher on Tuesday following President-elect Donald Trump’s comments that the U.S. dollar has become “too strong” in an interview with the Wall Street Journal.

His comments prompted a selloff in the U.S. dollar and a subsequent spike in gold; at time of writing, the SPDR Gold Trust (ETF) (NYSE: GLD) was up 1.5 percent.

Retail's Response

The SPDR S&P Retail (ETF) (NYSE: XRT), a retail-oriented ETF moved as much as 2 percent higher Tuesday following Trump’s comments. The strong U.S. dollar has been creating some difficult currency headwinds for U.S. companies generating sales outside of the country. Bloomberg’s Dollar Spot index, which tracks the dollar against its major global peers fell more than 1 percent after seeing a surge on back of the election in November.

The strong dollar is weighing on corporations' earnings and hurting sales, as U.S.-made products become more expensive to purchase in other countries, particularly in Asia. As foreign purchases need to be converted back to dollars, earnings growth is compromised as sales on a per unit basis don’t necessarily translate to top- or bottom-line increases in quarterly reports.

Therefore, against the backdrop of the president-elect's comments on the strength of the dollar, retail stocks received a boost on the possibility that things will change once Trump assumes office Friday.

Specific Shares Enjoying Moves Higher

Shares of U.S. retailer Coach Inc (NYSE: COH) were up nearly 2 percent, while Ralph Lauren Corp (NYSE: RL) moved almost 4 percent higher. Nike Inc (NYSE: NKE) jumped just above 1 percent and Hanesbrands Inc.(NYSE: HBI) was up 3 percent.

These companies have a significant global presence and have suffered noticeable currency headwinds as the dollar continues to strengthen.

With Trump’s recent comments about the dollar's strength and continual attack on China’s role as a currency manipulator, it's clear he has set his sights on this issue, easing some corporate concerns that the dollar’s strength has gotten out of control.

Image Credit: By Michael Vadon - Own work, CC BY-SA 4.0, via Wikimedia Commons