The drop in the dollar rescued some important US multinationals during this season of results, relieving the impact of the tariffs of President Donald Trump, who triggered the costs and disrupted financial planning.
A weakest dollar increases the value of foreigns from American companies, while increasing the competitiveness of US exports.
Companies such as Levi Strauss, Netflix, Pepsi and 3M, which generate significant income of their sales abroad, reported an increase in their profits between April and June or raised their annual forecasts due to the fall of the dollar.
The dollar lost about 10% this year, due to rapid changes in commercial policy and concerns about public debt growth.
Last week, Pepsico, whose total net income depends on their international businesses, predicted a lower fall in its annual profits, driven by the depreciation of the dollar.
The weakness of the dollar “can be another source of bullish potential that consolidates the narrative of a very solid results season,” said Angelo Kourkafas, senior strata of Global Investment of Edward Jones.
“However, there is a credit limit that investors grant companies that show a big bullish surprise regarding estimates, driven only by exchange trends.”
Based on two decades of data, each depreciation of 1% of the dollar historically improves the growth of profits per share of the S&P 500 in approximately 0.6 percentage points, according to LSE data. Approximately 38% of the income of the S&P 500 come from international markets.
Information technology companies, discretionary consumption, medical care and industry have the greatest international exhibition.
“We originally expected more than 100 million dollars in winds against due to the strengthening of the dollar, and the opposite has happened,” said Scott Ullem, financial director of the Medical Equipment Manufacturer Edward Lifescience, at a Jefferies conference on June 4.
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Despite the wind in favor of the dollar, investors still do not see commercial clarity
Even so, a wind in favor in the exchange market is not always enough to reassure investors, looking for real growth signs as consumers, restless, reduce their expense.
Investors do not usually reward sales driven by the exchange rate superior to the real ones in the same way that sales in constant currency reward, according to Goldman Sachs’ strategists in a note.
“In many ways, investors should consider some of these factors such as transitory or specific adjustments that are not sustainable,” said Michael Arone, strata head of State Investments Street Investment Management.
Netflix shares fell more than 4% on Friday, since some investors were disappointed by an increase in income forecasts, more driven by the weakness of the dollar than due to strong demand.
With Reuters information
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