Educational chart:
The massive 20% rally in the US Dollar into the fall of 2022 coincided with the bear market in stocks and fears of recession as the Fed was raising rates to choke off the inflation stoked from aggressive fiscal and monetary expansion post-Covid lockdowns.
What is important to learn is how the US Dollar movements can drive earnings estimates so you are prepared for the next time when the media is blasting bearish commentary on "falling earnings estimates".
The extreme bearish sentiment in the US last year as a result of weakening earnings estimates was a sign to look at the impact of the US Dollar on those estimates.
40% of sales in the S&P500 Index are from international sources and that means that earnings from abroad will translate back into fewer US Dollars.
It's an important factor to understand when looking at the broad landscape for your investing strategy.
What is the Dollar telling us now? Neutral impact now from year ago levels means that the Dollar wont impact the earnings of the S&P500. Going forward over the next 6 months, the falling
DXY
of 10% will be a boost to earnings and may explain some of the 10% market rebound from the low last October.
The massive 20% rally in the US Dollar into the fall of 2022 coincided with the bear market in stocks and fears of recession as the Fed was raising rates to choke off the inflation stoked from aggressive fiscal and monetary expansion post-Covid lockdowns.
What is important to learn is how the US Dollar movements can drive earnings estimates so you are prepared for the next time when the media is blasting bearish commentary on "falling earnings estimates".
The extreme bearish sentiment in the US last year as a result of weakening earnings estimates was a sign to look at the impact of the US Dollar on those estimates.
40% of sales in the S&P500 Index are from international sources and that means that earnings from abroad will translate back into fewer US Dollars.
It's an important factor to understand when looking at the broad landscape for your investing strategy.
What is the Dollar telling us now? Neutral impact now from year ago levels means that the Dollar wont impact the earnings of the S&P500. Going forward over the next 6 months, the falling
DXY
of 10% will be a boost to earnings and may explain some of the 10% market rebound from the low last October.
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I hope this chart was insightful and helpful to understanding the flow of earnings estimates given the uncertain economic environment that is always present. If we can at least understand the drivers of earnings estimates, we can get a better handle on the risks that lay ahead vs the risks that have already happened.
Cheers.
Tim 9/11/2023 9:25AM EST