According to data research by Fact set, about 70% of S&P 500 companies are about to blame dollar for earnings miss or cite dollar as giving a negative impact.
Next in line for the blame games are domestic issues as strikes on West Coast ports, oil and gas price drop that led to shelving of investments. Some companies might blame Russia Ukraine conflict, China slowdown as risks to earnings.
How justified is stronger dollar issue?
- US has never been much of an exporter from a historic point of view, so weaker dollar won’t necessary drive to a positive trade balance.
- However stronger dollar surely pose a challenge for US companies as their products will be unattractive over European and Asian counterparts. Exporting sector remains relatively smaller in US. Close to 70% of what being produced in US, are consumed domestically.
- Earnings might be hampered of larger multinationals who have word wide operation and large portion of the sales come from outside US.
Will then it be S&P500 negative?
Not in the medium to long term. Weaker Euro and Yen, and return of growth worldwide will eventually benefit these companies increasing their scale.
- The companies can actually benefit, should it choose to invest, reinvest the profits in the regional areas and import raw materials in such that input cost decreases.
- Lower energy prices will remain advantageous for companies in US. Stronger dollar makes fuel cheaper, compared to other currencies like Euro.
However rapid appreciation of dollar, might lead to deflationary pressure in the longer term and companies might move away their manufacturing base out of US.
The material has been provided by InstaForex Company – www.instaforex.com