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The Resurgent Dollar Could Hurt S&P 500 Earnings

The materials industry, which includes Dow Chemical and miner Cliffs Natural Resources, also gets more than half of its sales overseas.

"We would be wary of sectors that derive a lot of their sales overseas, given that fact that we expect the dollar's strength to remain," says Kristen Scarpa, an investment strategist at Barclays Wealth and Investment Management.

COMMODITY CONCERNS

When the dollar appreciates, it makes commodities like oil and metals â¿¿ which are priced only in dollars â¿¿ more expensive for customers who buy them with other currencies like the euro and the yen.

That can weaken demand for commodities, hurting the profits of the companies that produce them, like oil producers Exxon Mobil, Chevron and metals companies like the aluminum producer Alcoa.

The S&P mining and metals index, which includes Alcoa and the gold miner Newmont Mining, has fallen 6.6 percent this year. Energy is the weakest industry in the S&P 500 in the past month, up less than 2 percent, versus 4 percent for the S&P 500.

RETREAT FROM EMERGING MARKETS

For investors putting their money to work overseas, the stronger dollar presents a different problem.

The rising dollar impairs the value of your overseas holdings, notes Kurt Umbarger, global equities portfolio specialist at T. Rowe Price.

The MSCI emerging markets index, a benchmark of stocks in developing countries including Brazil, South Korea and China, is down 1 percent this year before accounting for changes in currency rates. When measured in dollar terms, though, the loss widens to 2.1 percent. That's because the currencies of those countries have fallen in value against the dollar.

HOME SWEET HOME

If you're worried about the dollar rising, telecommunications like AT&T and utility companies like Duke Energy offer a haven.

These companies are shielded from the impact of a stronger dollar because they make almost all of their sales in the U.S.

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