The swelling value of the US dollar poses the biggest threat to US corporate earnings in 7 years.
The dollar’s gain of 22% in the past 12 months against a basket of major currencies has landed a double whammy on US companies with big sales abroad. First, revenues from foreign markets are worth less when converted into greenbacks. Besides, US exporters are getting less competitive because of their higher costs against rivals producing in countries with declining currencies.
Once, the same dynamic of the greenback caused corporate revenues to slide year-on-year for at least two successive quarters. Experts note that 25% appreciation of the US dollar in 12 months has historically coincided with a 10% decline in the stock market's earnings per share.
Wall Street analysts currently estimate earnings growth of 1.3% for 2015, down from a forecast of 8.1% at the beginning of the year. The S&P 500's earnings per share are expected to drop 3.1% in the first quarter and 0.7% in the second quarter.
Nearly one-fifth of S&P 500 companies have reported on low earnings for the first quarter of 2015. At least 49 companies among them acknowledged the effects of the dollar on their performance.
"This is just the beginning," said Richard Bernstein, veteran Wall Street strategist and now CEO of Richard Bernstein Advisors in New York. "This impact of the dollar on US earnings could last for three to seven years.”
