The strong dollar will sting 1Q results
King dollar is maintaining its dominace and that means many U.S. multinationals are likely feeling the sting during the 1Q which ends on March 31. “50% of the earnings of the companies of the S&P come from foreign countries, so this currency exposure could be a significant impact to earnings,” predicts Chris Bennett, senior analyst, S&P Dow Jones Indices. The dollar has appreciated 19% as tracked by the PowerShares DB US Dollar Bullish ETF (UUP) over the past 12-months.
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Oracle (ORCL), Kansas City Southern (KSU) and General Mills (GIS) are among the large cap companies that have recently cited a negative quarterly impact to financials due to the stronger U.S. dollar. It’s likely investors will hear more of the same when the reporting seasons gets underway. “You are going to see more impact in the larger cap sector, as opposed to the smaller cap sectors which tend to have less exposure to foreign flows.” notes Bennett.
According to FactSet, Companies, excluding the volatile energy sector, that generate less than 50% of sales inside the U.S. are expected to see profits decline 1.3% while sales may see a modest rise 0.9%. The firm also notes the consumer discretionary sector has seen the third largest drop in expected earnings growth as analysts take down numbers for companies including Mattel (MAT), Amazon.com (AMZN) and Expedia (EXPE).
On the flip side, Wall Street is bullish on healthcare. The sector is expected to have the highest earnings and revenue growth rate of 11% and 9% respectively. The Health Care Select Sector SPDR ETF (XLV) is the top performing sector in the S&P 500 (^GSPC) this year up 8%.
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