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.
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.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV