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Earnings Insights: Watch the Dollar, Watch the Weather
There are two potential earnings disruptors on the horizon.
Michael Comeau    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

There's been a growing discussion of the US Dollar's strength over the past couple of months, so I wanted to do a brief exploration of its relationship to corporate profits.

As you can see in the chart below, the long-term downtrend in the US dollar has coincided with rising corporate profits.


Click to enlarge

All things being equal, a weak dollar is good for exports, and it benefits company P&L's through favorable translation of profits in foreign currencies.

Many US multinationals like Caterpillar (NYSE:CAT) and Coca-Cola (NYSE:KO) have historically been huge beneficiaries of a weak dollar.

And in what has been an overall solid Q2 earnings season, [subscription required] some companies, including Johnson & Johnson (NYSE:JNJ), Nike (NYSE:NKE), and Oracle (NASDAQ:ORCL) did identify a drag from the strong dollar.

The S&P 500  (INDEXSP:.INX) nearly plowed its way up to 2000 through some pretty lousy earnings seasons.

We're up quite a bit, and not only from the 2009 low.

The S&P is up 35% since 2012 (not including dividends), mostly on multiple expansion, and while the buyback/dividend/M&A frenzy is very supportive for equities, actual fundamentals need to kick in at some point and a headwind like a continued rise in the dollar can't be welcomed.

Since we're on the topic of earnings, there's interesting issue to keep in mind -- another polar vortex, which could peak its head out in September.

According to FactSet, due to Q1's messy winter weather, utility and energy companies reported the biggest upside earnings and revenue surprises, and those stocks did extremely well as a result.

So watch the dollar, and watch the weather!

Twitter: @MichaelComeau

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
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No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Earnings Insights: Watch the Dollar, Watch the Weather
There are two potential earnings disruptors on the horizon.
Michael Comeau    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

There's been a growing discussion of the US Dollar's strength over the past couple of months, so I wanted to do a brief exploration of its relationship to corporate profits.

As you can see in the chart below, the long-term downtrend in the US dollar has coincided with rising corporate profits.


Click to enlarge

All things being equal, a weak dollar is good for exports, and it benefits company P&L's through favorable translation of profits in foreign currencies.

Many US multinationals like Caterpillar (NYSE:CAT) and Coca-Cola (NYSE:KO) have historically been huge beneficiaries of a weak dollar.

And in what has been an overall solid Q2 earnings season, [subscription required] some companies, including Johnson & Johnson (NYSE:JNJ), Nike (NYSE:NKE), and Oracle (NASDAQ:ORCL) did identify a drag from the strong dollar.

The S&P 500  (INDEXSP:.INX) nearly plowed its way up to 2000 through some pretty lousy earnings seasons.

We're up quite a bit, and not only from the 2009 low.

The S&P is up 35% since 2012 (not including dividends), mostly on multiple expansion, and while the buyback/dividend/M&A frenzy is very supportive for equities, actual fundamentals need to kick in at some point and a headwind like a continued rise in the dollar can't be welcomed.

Since we're on the topic of earnings, there's interesting issue to keep in mind -- another polar vortex, which could peak its head out in September.

According to FactSet, due to Q1's messy winter weather, utility and energy companies reported the biggest upside earnings and revenue surprises, and those stocks did extremely well as a result.

So watch the dollar, and watch the weather!

Twitter: @MichaelComeau

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
More From Michael Comeau
Daily Recap
Earnings Insights: Watch the Dollar, Watch the Weather
There are two potential earnings disruptors on the horizon.
Michael Comeau    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

There's been a growing discussion of the US Dollar's strength over the past couple of months, so I wanted to do a brief exploration of its relationship to corporate profits.

As you can see in the chart below, the long-term downtrend in the US dollar has coincided with rising corporate profits.


Click to enlarge

All things being equal, a weak dollar is good for exports, and it benefits company P&L's through favorable translation of profits in foreign currencies.

Many US multinationals like Caterpillar (NYSE:CAT) and Coca-Cola (NYSE:KO) have historically been huge beneficiaries of a weak dollar.

And in what has been an overall solid Q2 earnings season, [subscription required] some companies, including Johnson & Johnson (NYSE:JNJ), Nike (NYSE:NKE), and Oracle (NASDAQ:ORCL) did identify a drag from the strong dollar.

The S&P 500  (INDEXSP:.INX) nearly plowed its way up to 2000 through some pretty lousy earnings seasons.

We're up quite a bit, and not only from the 2009 low.

The S&P is up 35% since 2012 (not including dividends), mostly on multiple expansion, and while the buyback/dividend/M&A frenzy is very supportive for equities, actual fundamentals need to kick in at some point and a headwind like a continued rise in the dollar can't be welcomed.

Since we're on the topic of earnings, there's interesting issue to keep in mind -- another polar vortex, which could peak its head out in September.

According to FactSet, due to Q1's messy winter weather, utility and energy companies reported the biggest upside earnings and revenue surprises, and those stocks did extremely well as a result.

So watch the dollar, and watch the weather!

Twitter: @MichaelComeau

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
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