With the US earnings season formally kicking off, many are bracing for poor news. The dollar trended higher in Q1, and the appreciation is thought to be a headwind on US multinational companies.
This Great Graphic composed on Bloomberg shows how the S&P 500 (yellow line) and the Russel 3000 (green line) have performed since a broad trade weighted measure of the dollar (white line) made a record low in 2011.
The hypothesis is that companies who get a larger share of their revenues from foreign markets (S&P 500 proxy for multinationals) than more domestic companies (proxy the Russell 3000) will do worse in a stronger dollar environment. Since the dollar bottomed in 2011, this measure has increased by 16.5%. The S&P 500 has under-performed the Russell 3000 but the difference 62.5% and 63.5% is not really worth explaining.
More recently, the dollar's appreciation accelerated last May. The results are similar for this shorter timeframe. This broad trade weighed measure of the dollar has risen almost 12%, while the S&P 500 has risen 9.7% and the Russell 3000 has risen 10.2%.
This short note does not pretend to be the last word on the relation between US equities and the dollar. The note does suggest that the relationship may be more complicated than the corporates and reporters will likely communicate during the earnings season.
This Great Graphic composed on Bloomberg shows how the S&P 500 (yellow line) and the Russel 3000 (green line) have performed since a broad trade weighted measure of the dollar (white line) made a record low in 2011.
The hypothesis is that companies who get a larger share of their revenues from foreign markets (S&P 500 proxy for multinationals) than more domestic companies (proxy the Russell 3000) will do worse in a stronger dollar environment. Since the dollar bottomed in 2011, this measure has increased by 16.5%. The S&P 500 has under-performed the Russell 3000 but the difference 62.5% and 63.5% is not really worth explaining.
More recently, the dollar's appreciation accelerated last May. The results are similar for this shorter timeframe. This broad trade weighed measure of the dollar has risen almost 12%, while the S&P 500 has risen 9.7% and the Russell 3000 has risen 10.2%.
This short note does not pretend to be the last word on the relation between US equities and the dollar. The note does suggest that the relationship may be more complicated than the corporates and reporters will likely communicate during the earnings season.
Great Graphic: The Dollar and Stocks
Reviewed by Marc Chandler
on
April 08, 2015
Rating:
Reviewed by Marc Chandler
on
April 08, 2015
Rating:
