I normally do not comment on statements made during trading segments on CNBC, but I thought recent information was particularly insightful. Dollar strength does impact company earnings and in particular creates headwinds for companies that repatriate earnings to the United States.
This is one of the things we look at very closely when we are analyzing stocks for portfolio strategies. Dollar strength impacts our estimates and whether or not we think stocks are appropriate in portfolios.
In particular, multinational companies are the ones that are particularly impacted by dollar strength changes. Companies that sell a significant percentage of their goods outside the United States factor that into their overall business plan.
Here are a few quotes from a recent CNBC Fast Money segment that I think you will find particularly interesting.
Wall Street may be underestimating the dollar’s jump to two year highs.
“With each passing day the dollar goes higher. That creates more of a headwind for the multinationals in the market in general,” “Fast Money” trader Guy Adami said on Tuesday. “A stronger dollar, as counterintuitive as it may be, is not good for the market.”
On Wednesday, the dollar index hit its highest level since March 25, 2020. The index is up 10% over the last year. The timing comes in conjunction with fourth quarter earnings season. The greenback’s move is also notable against the Japanese yen (JPY), where it’s also at a two decade high.
“If you repatriate that money and you get fewer dollars for whatever the currency you’re repatriating,” said trader Karen Finerman. “To me, that would be McDonald’s which actually at this point now has a little more than half of their business outside of the U.S. So, they would not be the beneficiary. They would be the victim.”
But some groups may thrive. Trader Steve Grasso experts some pockets including utilities to weather a stronger dollar. “They have a predictable demand and with them predictable earnings as well. No one likes the lights going off in your house once you have lights in our house,” he said. ’Whether it’s the yield play or whether it’s the predictability nature of it, those things are usually bought going into recession or a rising rate environment.”