Analysts believe companies will disappoint with their quarterly figures. But the more difficult financing conditions are also a burden for the companies.
New York. The uninterrupted soaring of the US dollar is increasingly causing problems for US companies. Experts are therefore assuming that the strong currency will have left its mark on company balance sheets in the coming days for companies to start their reporting season for the past summer quarter.
Over the year, the dollar has appreciated 16.7 percent against a basket of currencies, buoyed by the US Federal Reserve’s struggle Fed against inflation and the turbulence on the global financial markets, from which investors fled to the safe haven dollar.
But that is precisely what is increasingly becoming a problem for companies that also sell their products abroad. The strong dollar is one of the reasons why the profit expectations of the largest US companies have to be lowered further, said Erik Knutzen, chief investor for mixed funds at the investment company Neuberger Berman. “It’s one of the factors that leads to skepticism about US stocks.”
Bleak prospects
The strong dollar is not the only factor making life difficult for US companies: the generally rising prices and difficult financing conditions are also leaving their mark on the balance sheets. All of this is clouding the outlook for the US economy.
Analysts estimate that earnings for S&P 500 companies as a whole rose just 4.5 percent year-on-year in the past quarter — down from an 11.1 percent increase they had forecast in early July, according to Refinitiv data for March 30. September emerges.
Ohsung Kwon, an equity strategist in the company’s investment department, estimates that the strength of the dollar alone could reduce profits by five to six percent Bank of America. In the previous quarter, the damper was only two percent. Companies in the technology and raw materials sectors are likely to be hit particularly hard, said Kwon.
A number of companies have already lowered expectations, including the technology group IBM, the chemical giant DuPont de Nemours or the consumer goods manufacturer Procter & Gamble. The sporting goods manufacturer Nike, which generates more than half of its sales outside of North America, put the burden of the strong dollar at four billion dollars a month ago – that’s about twice as much as previously assumed.
Dollar likely to rise further
Should earnings turn out to be even worse than forecast, it should not bode well for the US stock market. The S&P 500 is already around a fifth lower than at the beginning of the year, and stockbrokers are expecting price turbulence until the US Federal Reserve succeeds in getting inflation under control again with its rate hike course. The key interest rate in the USA is currently in the range between 3.0 and 3.25 percent.
However, there are still no signs of a trend reversal on the foreign exchange market. Even though the dollar index has recently fallen by around two percent, 85 of the analysts polled by Archyde.com assume that it has not yet peaked.
The tight policy of the US Federal Reserve, a comparatively robust US economy and the economic problems in Europe should continue to support the dollar, wrote the analysts at UBS. “We think it’s too early to speak of a peak in Fed policy or the greenback,” they wrote. The strength of the dollar also has positive effects for the US market. The beneficiaries include those companies that buy a lot of goods abroad and now have to pay less for them.
Currency gains possible
At the same time, dollar investments now appear more attractive to foreign investors because they are less concerned about the exchange rate risk of a rising dollar when converting the money back into their home currency.
“It allows (foreign) investors to invest in what they see as a growth market without having to worry too much about the currency,” said Colin Graham, chief strategist at wealth management Robeco.
(Archyde.com/red.)