NEW YORK- Companies reporting earnings in coming weeks are likely to mention one common factor gouging their results: the strong dollar.
The US currency stands near a 20-year high against a basket of its peers .DXY and is up 15.1 percent in the past year, lifted by a hawkish Federal Reserve and investors seeking shelter from turbulent markets.
A strong dollar can be a headwind for US companies as it makes exporters’ products less competitive abroad and hurts multinationals that need to convert their foreign profits back into the US currency.
Each percentage point of year-on-year increase in the US Dollar Index, which measures the dollar against six other currencies, translates to a 0.5 percentage point hit to S&P 500 earnings growth, analysts at MorganStanley estimated.
“You seemingly can’t get a break right now. We’re starting to get some relief from oil prices, but you’ve still got the dollar banging on you,” said Bill Stone, chief investment officer at the Glenview Trust Company.
International Business Machines Corp, Netflix Inc and Johnson & Johnson were among the companies that in the past week cited the dollar’s strength as a headwind, with Johnson & Johnson joining Microsoft Corp by cutting its guidance due to the impact of the greenback’s rise.
Next week’s results from Apple Inc, Microsoft Corp, Coca-Cola Co and a slew of other companies will give investors a better picture of how businesses are holding up in the face of the strong dollar and soaring inflation.
Investors are also awaiting what the Fed will have to say on those topics at its monetary policy meeting next week, at which it is widely expected to deliver another jumbo-sized 75 basis-point rate increase.
