With earnings season here, what's lost in the "oohing and aahing" over the incoming results is a reasoned look at what's influencing the dollar's move and, more importantly, the effect it will have on our wallets, if not today, certainly down the road.
strong u.s. dollar
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- The Rising U.S. Dollar Index Will Nail Multinationals – So Do This Now
Earnings and corporate reports are a long game, and that game is in the early innings. Investors need to understand the reasons behind the strength in the dollar, why it is likely to persist, and how we need to prepare...
Recently, some new neighbors moved in just down the street, and with new neighbors come changes.
The most apparent changes always happen outside of the house, and within a few months the house transformed as a pool, a patio, and even a sunroom became (welcome) additions. Indeed, so much changed that the neighbors around us started to talk.
You see, most people don't like change - but I welcome it.
Indeed, as traders, we actually need change in order to find a potential to profit.
Not all U.S. companies have been hurt by the dollar's year-long rally. Companies that share one key trait - let's call them strong-dollar stocks - are thriving.
Many multinational companies have seen the strong U.S. dollar eat into their earnings over the past few quarters. But we'll hear a different story from the strong-dollar stocks. This group of companies has little or no exposure to foreign markets.
And the factors feeding the strong dollar won't change any time soon.
Since 2008 the U.S. dollar has risen against every important currency in the world.
Its steady ascent has been good for a lot of companies, economies, and investors.
The Fed plans to wind down its asset purchases this month, but Japan and the United Kingdom are still buying, full swing.
Meanwhile, the European Union is just looking to get started.
And, while the Fed is expected to begin raising rates next year, Europe and Japan recently pushed theirs below zero as deflation appears to be the bigger threat.
That's sent the U.S. dollar into a major run up, with the euro and yen on the losing side.
Multinational stocks have started to feel some negative ripple effects of the rising U.S. dollar index.
While a rising U.S. dollar index can have benefits, companies with a lot of global business face reduced sales and profits as their goods grow more expensive. For U.S. companies with substantial overseas sales, this means an extended period of pain.