This research investigates the relationship between foreign exchange rates and U.S. stock returns on an intertemporal basis during the bull and bear periods of the U.S. dollar. This analysis includes 49 developed and emerging stock markets for 30 years (1975-2004). The results indicate a general weak relationship between foreign exchange rates and U.S. stock returns. An exception is the Canadian/U.S. dollar exchange rate which demonstrates greater consistency over a given time. An optimal portfolio model reveals that foreign investments significantly enhance return-to-risk performance during the bear market periods of the U.S. dollar.