What happened

Growth stocks including MercadoLibre (MELI 0.95%), Etsy (ETSY 3.38%), and Wayfair (W -0.10%) were flying higher Monday morning as investors reacted to new fiscal policy announcements out of the U.K. and a strong earnings report from Bank of America. Investors were also looking forward to third-quarter earnings reports, which ramp up this week.

The biggest news of the day seemed to be a decision by U.K. finance minister Jeremy Hunt to ditch an earlier tax cut proposal, which had stoked concerns about inflation. He also announced an end to energy subsidies on April 1. Together, the news helped boost confidence in the U.K. economy and the British pound, weakening the U.S. dollar. The U.S. Dollar Index was down 1.2% in early afternoon trading, which is good news for global e-commerce companies like the three above, and it also boosts confidence that the global economy could avoid a recession.

As of 12:18 p.m. on Monday, MercadoLibre stock was up 12%, Etsy had gained 6.2%, and Wayfair was up 14.8%. At the same time, the Nasdaq was up 3.3%, showing growth stocks and tech stocks were gaining across the board.

So what

All three stocks have fallen sharply in the sell-off over the past year, and are therefore primed to surge in a market recovery, especially if consumer spending remains strong.

Based in Latin America, MercadoLibre reports its results in U.S. dollars, though it runs its business in local currencies across the region. That means that the strengthening dollar has affected MercadoLibre's reported results, even though the underlying business remains strong.

In its most recent quarter, currency-neutral revenue rose 56.5% to $1.7 billion, compared to a 52.5% increase in reported revenue. While MercadoLibre doesn't spend as much money in dollars as a U.S.-based company would, the business is still priced and evaluated dollars.

Etsy was a big winner during the pandemic, but the stock has dived as growth has slowed to a halt recently. The company is lapping strong growth from a year ago, and consumer spending has shifted back to services like travel and restaurants. 

In recent years, Etsy has expanded its presence in foreign markets with its acquisitions of Depop, a vintage and used clothing app based in the U.K., and Elo7, a Brazilian marketplace similar to Etsy. In 2021, 42% of the company's gross merchandise sales came from outside the U.S., and it sees international markets as a growth opportunity. Given that, it stands to benefit from a weakening dollar since that will make its international revenue more valuable.

At Wayfair, only about 20% of revenue comes from international markets, but the company is highly sensitive to the macroeconomic environment, especially after the stock surged and then plunged during the pandemic.

Wayfair is also currently unprofitable, making it more vulnerable to rising interest rates, so the stock is likely to respond to any signs that the Federal Reserve could become less aggressive with rate hikes or that consumer spending will remain resilient in spite of concerns about a recession.

Now what

After today's jump and the pop last Thursday, which came even after a hotter-than-expected inflation report, it seems that investors are looking for a reason to bid stocks higher. 

Though it's impossible to time the market or call the bottom, that sentiment is good news for investors in growth stocks like these three. Upcoming earnings reports for MercadoLibre, Etsy, and Wayfair should move the stocks one way or another in the coming weeks, and investors will want to keep their eye on the next Fed interest rate decision on Nov. 2. 

Continued volatility for these stocks is likely to be the norm until monetary policy stabilizes and fears of a recession have subsided.