This divergence is likely to have US stock investors concerned since the stock market and is not the US economy. Indeed, the large multinational firms of the S&P 500 generate much of their business abroad.
“Foreign sales accounted for 33% of aggregate revenue for the S&P 500 in 2013,” Goldman Sachs’ Amanda Sneider writes. “The median stock reported 29% of sales outside the US. Companies reported that 12% of revenues came from EMEA, with 7% directly attributable to Europe. Approximately 8% of revenues stem from the Asia Pacific region and just 7% of reported revenues were from non-US Americas (Canada and Latin America). The remaining 6% of revenues were foreign but unclassifiable.”
In addition to weak sales due to deteriorating foreign demand, these multinational companies have to worry about the strengthening US currency, which shrinks the value of foreign profits when they get converted to dollars.
Sneider believes that stocks with greater exposure to Western Europe are more likely to miss analysts’ estimates when they announce their Q3 earnings.