MW What the U.S. dollar's 'surprise' rally in 2024 means for U.S. stocks
By Christine Idzelis
A stronger U.S. dollar does not affect all S&P 500 sectors equally, says DataTrek co-founder Nicholas Colas
The strengthening U.S. dollar is raising investor worries over what the greenback's rise so far in 2024 may mean for stocks.
The "surprise" rally in the dollar this year hurts U.S. company earnings, currency strategists at BoA Global Research said in a note emailed Tuesday. The ICE US Dollar Index DXY, which measures the greenback against six major currencies, was up modestly Tuesday for a gain this year of around 4%, according to FactSet data, at last check.
Forty-one percent of S&P 500 revenues stem from non-U.S. sources, leaving "the index open to the possibility of structurally lower earnings in a rising dollar environment," Nicholas Colas, co-founder of DataTrek Research, said in a note Tuesday, citing FactSet data. That's because "non-U.S. profits are worth less than if the greenback were stable versus non-U.S. currencies."
But "a stronger dollar does not affect all S&P sectors equally," said Colas. "Sectors one might think of as quite global, like financials, have below-average non-U.S. revenues" at 28%.
Percentages of international revenue across sectors in the index span from 1% to 57%, with utilities having the smallest portion and technology the biggest, the DataTrek note shows.
Only three of the S&P 500's 11 sectors have above-average revenue from outside the U.S., according to DataTrek, citing communication services, materials and technology. International revenues within communication services were largely tied to Google parent Alphabet Inc. $(GOOGL)$ and Facebook parent Meta Platforms Inc. (META), the firm found.
The S&P 500 SPX has climbed around 8.7% so far in 2024 based on Tuesday afternoon trading, with nearly all its sectors rising, according to FactSet data. Communication services XX:SP500.50 posted the biggest gain, up more than 18%, followed by around 11% jumps for both technology XX:SP500.45 and energy XX:SP500.10, the data show, at last check. Only real estate XX:SP500.60 was trading lower year to date, down almost 7%.
"While a weaker dollar would be welcomed both in terms of its effect on S&P earnings and for what it says about global investor confidence," Colas said that over the long-term "a stronger greenback has not held back" U.S stocks or corporate cash flows.
A stronger U.S. dollar "has been part of the global investment and commercial landscape for almost 20 years," according to DataTrek.
"While it has had its ups and downs as global investor risk appetites have waxed and waned, the long-term trend is to a stronger dollar," said Colas. "Moreover, tech stocks have obviously thrived during the dollar's long bull market."
-Christine Idzelis
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
May 07, 2024 15:07 ET (19:07 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
Comments