The full impact of the stronger US dollar, which crippled revenues and profits of big companies such as Nike (NKE) and FedEx (FDX) in the third quarter, will not be felt for some time, warns a veteran currency strategist. do.
“What we see today will take time to be reflected in earnings,” Joseph Lewis, head of corporate hedging and FX solutions at Jefferies, told Yahoo Finance Live. (video above). “If the dollar continues to be strong, as is generally expected, I think we will probably see this show in the first and second quarters of next year. We haven’t done that yet, and we’ve had time to fully reflect that in our income statement.”
The US dollar has been on a serious rally for months, boosted by the Fed’s aggressive interest rate hikes to stem inflation and currency instability in countries such as the UK. of progress that began in mid-June after the Fed stepped up its anti-inflation rhetoric.
A strong dollar has the effect of lowering the sales and profits of large multinational companies operating in multiple countries. The opposite is true when the dollar is weak.
Such strengths pose significant challenges for companies (and markets) when it comes to actual financial performance and communicating guidance to investors.
Food makers Conagra Brands (CAG) and McCormick (MKC) warned last week of the potential economic hit from a stronger dollar. Analysts also widely expect to hear bearish comments on the currency elsewhere as earnings season heats up.
In a new memo, FactSet researchers emphasized that “adverse foreign exchange rates are the third most cited company in terms of negative impact on 10 (or 50%) of the S&P 500 companies.” , the number is well above the previous four-quarter average of 4 for this factor until the same point in the earnings season.”
“Given the strength of the U.S. dollar in recent months (indicated by the rise in the U.S. dollar index) and exposure to international earnings of 40% of the entire S&P 500, (early-early these companies are likely to suffer from unfavorable foreign exchange earnings, “Markets will continue to monitor foreign exchange comments throughout the earnings season,” the researchers said.
Brian Sotzi general editor, Yahoo Finance anchorFollow Sozzi on Twitter @BrianSozzi and LinkedIn.
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