Key Takeaways:
The strongest US stock rally in years is failing to lift the dollar, and Goldman Sachs says three structural forces explain why.
The S&P 500's AI-driven outperformance relative to global peers has failed to translate into dollar strength, breaking a historical correlation that has held for years. The trade-weighted dollar index has lagged what equity market moves alone would typically imply, according to Goldman Sachs' global market daily report published June 24.
"The divergence between US equity outperformance and the dollar is not a temporary anomaly but the result of three structural shifts in how capital flows through markets," the Goldman Sachs team wrote in the report.
The first factor is geographic composition. US stocks have outperformed mainly against other developed markets rather than emerging ones. South Korea and other Asian markets with high tech权重 have also benefited from AI-driven demand, with some posting gains that rival or exceed those in the US. Since inflows into US equities drive the dollar more strongly against emerging-market currencies than against developed-market ones, the limited outperformance against EM peers has muted the FX spillover.
The second factor relates to earnings expectations. When one-year-ahead earnings estimates rise faster than two-year-ahead estimates — implying growth is expected to slow — the dollar tends to underperform relative to what equity gains would suggest. The current rally has been fueled by sharp upgrades to near-term profit forecasts, while consensus projections point to deceleration beyond the next 12 months. Short-term earnings jumps generate less dollar demand than sustained profitability improvements would.
The third factor is market breadth. The rally has been extraordinarily narrow, with the S&P 500's concentration compressing to some of the tightest levels in decades. Goldman's analysis shows that when market breadth narrows — measured by the gap between the index's distance from 52-week highs and the median stock's distance — the dollar tends to lag relative to equity performance. A handful of mega-cap technology names have driven the bulk of index gains, limiting the broad-based capital inflows that typically support the currency.
The current dynamic mirrors the "software selloff" period in reverse, the report noted. During that downturn, global equities fell in sync with US stocks, limiting the dollar's downside. In the current AI-driven upswing, global markets are rising alongside US equities — and in some cases outpacing them — which has capped the dollar's upside.
For investors, the breakdown carries concrete implications. If the US stock rally broadens or earnings expectations become more sustainable, the dollar could catch up, potentially squeezing short-dollar positions. Conversely, if AI-driven outperformance remains concentrated in a few mega-cap names and developed markets, the dollar may continue to underperform relative to equity gains. A sharp US equity selloff with global markets holding up better would be the most potent catalyst for dollar weakness, the report suggested.
The analysis shifts the narrative around the dollar's role in 2026. Earlier this year, markets expected US equity weakness to drag the currency lower. Instead, AI-driven gains have turned equities into a net positive for the dollar — just not enough to overcome the structural headwinds identified by Goldman Sachs.
This article is for informational purposes only and does not constitute investment advice.
