What the Strong Dollar Means for Businesses and Investors

The U.S. dollar is the strongest it’s been in decades, and it’s showing no signs of cooling off. Given the continuing focus by financial markets on the aggressive monetary policy tightening by the Federal Reserve, the dollar’s strength should continue against most foreign currencies at least until year-end. That has major implications for multinational companies, and for the investors who buy their stocks.

An easing of inflationary pressures and improving global growth conditions are likely needed to bring about a peak in the dollar, conditions that are unlikely to materialize anytime soon. Investors around the world have flocked to the dollar because it is a source of stability amid weak global economic conditions. The greenback has also benefited from the high commodity prices this year stoked by Russia’s war in Ukraine.

Nearly all currencies have fallen against the buck over the past several months. While currencies in emerging markets generally feel pressure when investors flock to the dollar, those of developed countries also have fallen this time. The ICE U.S. Dollar Index, which measures the dollar against a basket of currencies from major trading partners such as Japan, the U.K. and the eurozone, has mounted a steep climb this year. The index is up more than 13% in 2022.

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The strong dollar will likely have an impact on earnings of many publicly traded companies. Several, including Microsoft (MSFT), IBM (IBM), Nike (NKE), Johnson & Johnson (JNJ) and Philip Morris (PM) have recently highlighted the surging dollar as a factor that weighed on revenues in their second quarter results. Goldman Sachs (GS) estimates that a 10% appreciation in the dollar would reduce earnings by companies in the S&P 500 by 2%-3%. Companies in the S&P 500 index generated 29% of sales outside of the US in 2021. Here’s a rundown of stocks that stand to gain or lose due to the dollar’s strength.