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.
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.
Rodrigo Sermeño covers the financial services, housing, small business, and cryptocurrency industries for The Kiplinger Letter. Before joining Kiplinger in 2014, he worked for several think tanks and non-profit organizations in Washington, D.C., including the New America Foundation, the Streit Council, and the Arca Foundation. Rodrigo graduated from George Mason University with a bachelor's degree in international affairs. He also holds a master's in public policy from George Mason University's Schar School of Policy and Government.
Should I Trade Stocks or Options?
Answering the question "should I trade stocks or options" will depend on your own risk tolerance, investing objectives and understanding of market dynamics.
By Jared Hoffmann Published
This Is How You Can Be a Snowbird in Retirement
There’s a lot to consider, and warm weather shouldn’t be the only deciding factor. For instance, will you rent or buy? What’s the tax and health care situation?
By Tony Drake, CFP®, Investment Advisor Representative Published
The Fed Holds Interest Rates Steady
The Fed cautions that inflation remains high and it is prepared to adjust its monetary policy ‘as appropriate if risks emerge.’
By Esther D’Amico Published
Banks Lost Billions on Bad Loans Last Quarter: Kiplinger Economic Forecasts
Economic Forecasts Bank deposits are also down, and more people are tapping into their savings.
By Rodrigo Sermeño Published
Kiplinger Special Report: Key Business Costs for 2024
Economic Forecasts Looking at business costs for 2024, expect slight cost increases across the board, from insurance rates to shipping expenses. Profits will be up, too.
By John Miley Published
What Is the Federal Funds Rate?
The federal funds rate can impact a host of borrowing costs, and thus the entire U.S. economy. Here, we take a closer look at this key metric.
By Jeff Reeves Published
Is It Prime Time for Money Market Funds?
The Fed's interest rate hike could be a boon for savings accounts. Here's why.
By Seychelle Thomas Published
What the Fed's Rate Pause Means for Savings
At their latest meeting, the Fed kept interest rates steady. Here's what that means for savings rates.
By Erin Bendig Last updated
Bond Basics: Treasuries
investing Understand the different types of U.S. treasuries and how they work.
By Donna LeValley Published
The Fed Launches Real-Time Payments System: Kiplinger Economic Forecasts
Economic Forecasts FedNow, the Federal Reserve's real-time payment system works with banks and service providers to facilitate instant transactions 24 hours a day, 365 days a year.
By Rodrigo Sermeño Published