May 2, 2023
S&P 500 has been falling, but for Euro and GBP investors, it hasnâ€™t been quite so bad
The S&P 500, one of the most widely followed stock market indices in the world, has been on a downward trend in recent weeks. However, for investors holding Euros or British Pounds, the decline hasn't been quite as severe.
The reason for this is simple: currency exchange rates. When the value of the US dollar falls, as it has been doing recently, it means that other currencies, such as the Euro and the Pound, are worth more in comparison. This can offset some of the losses that investors in the S&P 500 might be experiencing.
For example, let's say that an investor in the Eurozone had invested â‚¬10,000 in the S&P 500 at the beginning of the year, when the exchange rate was â‚¬1 = $1.12. At that time, the S&P 500 was trading at around 3,800 points. Fast forward to today, and the S&P 500 has fallen to around 3,600 points, a decline of around 5%.
However, over the same period, the exchange rate has shifted to â‚¬1 = $1.20. This means that the investor's â‚¬10,000 is now worth $12,000, an increase of 20%. So even though the S&P 500 has fallen, the investor's overall return has been positive.
The same is true for investors holding British Pounds. At the beginning of the year, Â£1 was worth around $1.37. Today, it's worth around $1.33. This means that a British investor who had invested Â£10,000 in the S&P 500 at the beginning of the year would have seen their investment fall by around 5%, but the decline in the value of the US dollar would have offset some of that loss.
Of course, currency exchange rates can be volatile, and they can work against investors just as easily as they can work in their favor. But for now, at least, investors holding Euros or Pounds can take some comfort in the fact that the decline in the S&P 500 hasn't been quite as bad for them as it has for investors holding US dollars.