Here’s something you’re probably hearing, and are going to hear, a lot during this earnings season: the strong US dollar is hurting corporate earnings.
And while this is the kind of thing that has become an accepted market truism, it might not be clear why a strong dollar is a bad thing for US companies.
In an afternoon email, NYSE director of floor operations Rich Barry passed along this super simple explanation from a source he characterised only as an “economist/market guru,” as to why a strong US dollar — which to many might seem like a good thing — hurts corporate earnings:
“…And this morning’s data, along with earnings misses, show how Dollar strength along with lower oil prices are making a negative impact. Here’s an interesting example that shows why US Multinationals are facing stiff headwinds from the strength of the Dollar: Just 5 months ago a product selling for 1,000 US Dollars would have cost a European 745 Euros. Today that same item would cost them 900 Euros. That’s a 21% price hike in just 5 months! Is it any wonder why there are slower sales for US Multinational corporations?”
So there it is.
And as for just how strong the US dollar has been, here’s the chart of the trade-weighted dollar: