Some U.S. stocks are poised to rise more than others if the value of the dollar keeps sliding.
The WSJ Dollar Index dropped more than 1% Wednesday after the Federal Reserve indicated that it would raise interest rates more slowly than it had expected, and the greenback extended its slide on Thursday.
The Fed’s dovish stance is likely to, “spur on the broader theme of USD weakness that has been getting increased traction in the markets,” said HSBC analysts, led by Kevin Logan, in a Wednesday note.
The greenback had been widely expected to keep climbing after surging more than 20% between July 2014 and March 2015, prompting corporate executives to pin weak earnings on the strength of the dollar. In 2015, a rising trade-weighted dollar lowered sales growth among S&P 500 companies by 5%, according to Barclays analysts, led by Jonathan Glionna.
So far this year, the Dollar Index is down 2.9%. When the dollar weakens, revenues earned in other currencies translate back to more dollars and companies can cut prices with fewer consequences for the top line. A stabilizing dollar could help boost sales growth by 3% this year and a weakening dollar could be a further boon, Barclays said in a Wednesday note.
Companies with large international exposure stand to gain the most, and stock investors are already taking notice, according to an analysis by Bespoke Investment Group. Since the dollar peaked at the end of January, S&P 500 companies with more than 50% of the revenues coming from abroad have gained 7.1%, while companies that generate all of their revenues domestically are up a smaller 5.1%...MORE
