The US Dollar continues it’s bullish trend, garnering our attention more than usual.
As the dollar approaches the 100 level, parallels can be drawn to previous occasions when this feat was achieved. We can also look for some 30% of the S&P500 reporting earnings to be impacted. More importantly, the strong dollar makes forward guidance difficult to forecast, which in turns imparts a detrimental affect on share price.
Bottom line, the dollar needs to be considered when positioning for profits.
Late 2015 the dollar peaked and markets responded by moving lower. By the time the S&P500 bottomed in early 2016, two months later, SPY was off by nearly 14%. Right now, price patterns look very similar, depicting lower highs. The dollar continues to breach higher levels in the interim. The fate of the equity markets can be tied to the dollar trend over the coming weeks, so be aware of its impact when making decisions about long term investments.
Three Companies with Overseas Operations
Procter and Gamble is one such example. P&G is the world’s largest consumer products maker. The company receives nearly two thirds of its revenue from foreign markets. It also maintains operations in more than 80 countries around the globe. Like many multinationals in the S&P500, the company has been forced to raise prices in foreign markets to offset the effects of the dollar, which leads to further declines.
The company reports today, before the opening bell. This is an ugly chart. Kudos to Ron and the team who monitored this stock just before its collapse. Price is below all the moving averages, so anticipate rejection at the first attempt to move back above.
This New Jersey based conglomerate has wide exposure abroad, so it is no surprise that it is affected by the strong dollar. Johnson & Johnson is the maker of American brands Band-Aid, Tylenol and Neutrogena and many important pharmaceuticals and medical devices.
JNJ reported a mediocre beat of 0.03 on 10/18/2016.
Walmart is another global behemoth that reported a $3.3 billion in net sales loss for the same quarter last year as the dollar began its ascent. The dollar was trading on average around 95.00 at that time. Global currency fluctuations were responsible for a large percentage of its losses. Will the trend improve or fail?
Wal-Mart Stores, Inc. is expected* to report earnings on 11/17/2016 before market open. – Source Nasdaq
Today’s commentary is meant to alert you to possible bad news ahead on the earnings front. Make sure and check which companies have exposure to overseas operations as the dollar continues its trek North.
Happy Trading – CV
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