Weakening dollar adding fuel to earnings growth

https://fisherfunds.co.nz/assets/Uploads/falling-kiwi-dollar.jpgLast fall, the US Dollar rose after the election and many pundits worried about the effect of the rising dollar on corporate earnings from abroad. Treasury Secretary Mnuchin advocates a strong dollar over the long term which is a policy that has been in place for more than two decades. Here are his thoughts:

For longer-term purposes, an appreciation of the dollar is a good thing and I would expect longer term, as you’ve seen over periods of time, the dollar does appreciate. In the short term, there are certain aspects (of a strong currency) that are positive about the dollar for our economy and there are certain aspects that are not as positive.

dollar up and down.jpg

With data improving in Europe and the French Election easing worries about the euro, the dollar has fallen steadily so far in 2017. This is good news for corporate profits as it creates a potential big boost for profits of global-oriented US companies. Three factors "are conspiring for a 'honeymoon period' for overseas earnings," said Sean Darby, chief strategist at Jefferies.

1. The dollar is weakening as Fed rate hike assumptions are pushed out and as political uncertainty in the U.K. and Europe recedes.

2. Earnings revisions in Europe and parts of EM are accelerating faster than the U.S.

3. Concerns over protectionism are fading at the same time as global trade is rebounding.

Bullish on earnings

We have been bullish on S&P earnings since last summer and we remain bullish on the outlook for the rest of the year. The weakening US dollar will only add fuel to the fire and push earnings growth higher. With most of the S&P 500 reported for the first quarter, total earnings are up 13.4% year over year and revenues are up a healthy 7.3% (as per Zacks research). Estimates for the second quarter have come down since the start of the quarter, but that is typical and the magnitude of the negative revisions compares favorably to other recent periods.

become_a_blog_subscriber

Share This Story, Choose Your Platform!

About the Author: Chris Wang

Chris Wang

IMPORTANT DISCLOSURE INFORMATION 

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.-"Runnymede"), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede.  Please remember that if you are a Runnymede client, it remains your responsibility to advise Runnymede, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Runnymede's current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note: Runnymede does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Runnymede's web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Search Website

Annuity Review Database

Recent Posts

About our Podcast