The possibility of a recession in the developed regions - US, Eurozone - is currently weighing on stock markets, as government debt explodes and interest rates rise. With inflation accelerating to 9.1% in June in the United States, input prices for the production process - raw materials, labor - are rising and companies are seeing their profit margins shrink, negatively impacting their stock prices. At the same time, citizens are faced with significant inflation and see a sharp decline in their purchasing power, which translates into a generalized increase in prices, leading to a decline in demand. Companies are seeing their net income and profits decline. 

Economic Cycle

Uncontrolled inflation can become catastrophic for a country, and that is why central banks are trying to limit it. The monetary policy of the Fed in recent months has been to aggressively raise interest rates to increase the cost of borrowing, which mechanically reduces loans and thus cools economic activity and prices. This tough monetary policy has strengthened investor confidence that the Fed was able to tame inflation, and allowed the dollar to assert its position as the leading global currency. In challenging times, investors tend to seek refuge in haven assets, and the dollar is one of them. It remains the main international reserve and trade currency, as a central reference for other currencies and as an instrument for measuring investments...
It is enough to compare the evolution of the dollar over one year against the euro, the pound sterling and the Swiss franc to understand its power:
- USD/EUR: +17.65%.
- USD/CHF: +6.52% 
- USD/GBP: +16.67%.

Inflation has pushed central banks to raise their interest rates, and the post-Covid acceleration of economic recovery in the US has contributed to rising prices. Global markets are pegged to the dollar and with easing lockdowns, people began to consume again to pre-pandemic levels, but businesses could not keep up, as demand was far too strong for supply. 
Today, products sold via the dollar are the big winners and are fully benefitting from this situation. The macroeconomic environment is very complicated, with the war in Ukraine causing a shortage of gas and oil, wheat causing prices to explode and inflation further increasing these prices. However, the United States managed to take advantage of the situation by becoming the main supplier of liquefied gas to Europe and thus boosting its economy while, strengthening its currency, because these purchases are made in dollar. Moreover, the more a currency is depreciated - EUR, CHF, GBP - the higher the cost of imports. The energy bill, denominated in dollars, is likely to have the greatest impact on the European trade deficit. 

The current economic situation is especially benefiting three sectors that are being positively impacted by the strengthening dollar. The luxury goods, aerospace, and agriculture sectors. In each of these, three companies stand out: LVMH, Archer-Daniels-Midland Company, and Raytheon Technologies Corporation:

LVMH (MC):

The global leader in the luxury goods industry has shown extraordinary historical growth of 1300% since 2009. The company has been able to establish itself in many sectors - clothing, beauty products, haute couture... - while expanding internationally allowing it to have a larger customer base but also to be subject not only to one currency but to dozens. At the same time, LVMH has the majority of its production in China, which has been strongly impacted by lockdowns and sanitary restrictions preventing Asian customers from consuming. 
LVMH is the largest company in the French index CAC40, with a market capitalization of $305 billion. The company can benefit from high margins and an EBITDA up 115.42% between 2017 and 2021. In addition to the health situation in China that limits the production of many of the group's products, exports have increased, so the group can take advantage of the rising dollar to maximize profits. 

Archer-Daniels-Midland Company (ADM):

The US-listed company is among the leading German agribusiness groups and breaks down its sales as follows: agricultural services (78.7%), manufacture and sale of grain seed products (13%), production of flavors and ingredients (7.9%), and other (0.4%), where operations are mainly based in the United States (41.5%). 

With the war in Ukraine, wheat exports have been heavily affected as Russia, India and Ukraine are among the main exporters. In addition, global warming is having a negative impact on production and harvests have been reduced, while demand is increasing. Prices are exploding and exports - the dollar being the world's currency for raw materials - are  becoming more profitable for producers. ADM is benefiting from this situation because of its international exposure, but also because the company operates primarily in the United States. 

Raytheon Technologies Corporation (RTX):

Raytheon is the world's largest capitalization in the defense and aerospace sector. The defense sector is just beginning to be revised upward (analysts are adjusting their revenue and earnings per share forecasts) and the trend is expected to continue. The war in Ukraine has changed the security situation. Most European countries are not meeting the initial target of 2% of GDP spent on defense. This readjustment to 2% alone would lead to a 25% increase in the global defense budget. The whole sector should thus benefit greatly from these favorable policies. 

There is no doubt that the dollar will maintain its leadership position on international markets. Despite growing concerns that China's currency, - the yuan - could become the new mother currency, the dollar remains the uncontested leader for now. Especially with the current situation, where surging Covid cases are pushing China to implement various lockdowns that are hurting global production chains and exports. Investors are in a bit of a limbi in Asia, while in the U.S., monetary policies are clear and the dollar is strengthening. 

Even so, the way to reduce the risks associated with too rapid an appreciation of the dollar is for the rest of the world to make faster progress on structural reforms that enhance growth and productivity, thereby improving returns on capital and increasing economic resilience. 

In the US, the strong dollar presents many opportunities abroad for investors, as companies are getting cheaper. So it might be about time to look at London, Paris, Tokyo or Berlin indexes.