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Beware the strong US Dollar Part 1

Beware the strong US Dollar Part 1

The US Dollar has appreciated by nearly 16 per cent against major currencies so far in 2015, when compared to its average level over 2012-2014. Our friends at Deutsche Bank have calculated that for every 10 per cent appreciation in the US Dollar versus major currencies, earnings on the S&P 500 would be hit by 2.5 per cent.

This implies consensus earnings expectations for the S&P 500, based on 2015 year to date information, would be cut by around 4 per cent. However, if we took the spot price this reduction would be 6 per cent. Analysis of those companies comprising the S&P 500 reveals foreign sales and foreign profits account for 30 per cent and 25 per cent, respectively, of total sales and profits.

Hardest hit from the rising US Dollar headwinds could be the Technology Sector, where foreign sales and foreign profits account for 55 per cent and 35 per cent, respectively, of total sales and profits. We will be interested to see the degree this affects US companies for the March 2015 Quarter, when the results are published from late April.

Overnight, Oracle reported their third-quarter results ending 28 February, and revenue at US$9.33 billion was little changed from a year earlier. Without the effect of the strong US dollar, revenue would have gained 6 per cent Oracle said.

To learn more about our funds, please click here, or contact me, David Buckland, on 02 8046 5000 or at dbuckland@montinvest.com.

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Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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Comments

  1. Hi David, thanks. I agree with your article, although if you buy US stocks with AUD$, gains from the currency should cover the downsides to US stocks from the strong US$.
    Kelvin

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