When a company announces its quarterly financial results, it often provides guidance about the future. And this guidance often comes in the context of the macroeconomic backdrop.
FactSet has been listening to all of the earnings calls during the current earnings season, and they have published a couple of interesting macro quotes in their Earnings Insight report. One particular quote from Linear Technology pretty much summed up the feeling of every company out there.
“The following factors impact our guidance; on the macroeconomic front, the U.S. economy is strong and is projecting stronger growth than reported in recent years. On the other hand, Europe, China, and Japan are experiencing reductions in growth. The dollar is strong, which has pluses and minuses. Similarly, oil prices are low, which also has positive and negative economic effects.” — Linear Technology (Jan. 14)
The comments about the US, Europe, China, and Japan are very consistent with what we’ve all seen in the economic data.
The comments about the dollar and oil more or less answer two questions we often hear: “Is the strong dollar bad for stocks?” and, “Is crashing oil bad for stocks?”
Unfortunately for people asking those questions, the answers are not very straightforward. A strong dollar is good for companies that have to buy goods from foreign vendors, but it’s bad for companies with a lot of business overseas hoping to bring that money back into the US. Crashing oil is great for companies who use a lot of energy in their operations, but it’s bad for the companies that sell oil or supply those oil sellers.
Bottom line: there’s no black and white answer to these questions about oil and the dollar. It just depends on the company and the nature of its business.