Happy Thanksgiving! Save 50% on Your MarketBeat All Access Subscription.
  •  days
  •  Hours
  •  Minutes
  •  Seconds
×
S&P 500   4,026.12
DOW   34,347.03
QQQ   286.92
Considerations When Rolling Over a 401(k) into a Roth IRA
See how to make money instead of spending it on Black Friday with this offer (Ad)
Biden eases Venezuela sanctions as opposition talks resume
Whole Foods decision to pull lobster divides enviros, pols
THE BEST BLACK FRIDAY DEAL YET (Ad)
Airbnb has a plan to fix cleaning fees
Saudi viewers angry over apparent ban on World Cup streaming
THE BEST BLACK FRIDAY DEAL YET (Ad)
Cuba's informal market finds new space on growing internet
Bird flu prompts slaughter of 1.8M chickens in Nebraska
S&P 500   4,026.12
DOW   34,347.03
QQQ   286.92
Considerations When Rolling Over a 401(k) into a Roth IRA
See how to make money instead of spending it on Black Friday with this offer (Ad)
Biden eases Venezuela sanctions as opposition talks resume
Whole Foods decision to pull lobster divides enviros, pols
THE BEST BLACK FRIDAY DEAL YET (Ad)
Airbnb has a plan to fix cleaning fees
Saudi viewers angry over apparent ban on World Cup streaming
THE BEST BLACK FRIDAY DEAL YET (Ad)
Cuba's informal market finds new space on growing internet
Bird flu prompts slaughter of 1.8M chickens in Nebraska
S&P 500   4,026.12
DOW   34,347.03
QQQ   286.92
Considerations When Rolling Over a 401(k) into a Roth IRA
See how to make money instead of spending it on Black Friday with this offer (Ad)
Biden eases Venezuela sanctions as opposition talks resume
Whole Foods decision to pull lobster divides enviros, pols
THE BEST BLACK FRIDAY DEAL YET (Ad)
Airbnb has a plan to fix cleaning fees
Saudi viewers angry over apparent ban on World Cup streaming
THE BEST BLACK FRIDAY DEAL YET (Ad)
Cuba's informal market finds new space on growing internet
Bird flu prompts slaughter of 1.8M chickens in Nebraska
S&P 500   4,026.12
DOW   34,347.03
QQQ   286.92
Considerations When Rolling Over a 401(k) into a Roth IRA
See how to make money instead of spending it on Black Friday with this offer (Ad)
Biden eases Venezuela sanctions as opposition talks resume
Whole Foods decision to pull lobster divides enviros, pols
THE BEST BLACK FRIDAY DEAL YET (Ad)
Airbnb has a plan to fix cleaning fees
Saudi viewers angry over apparent ban on World Cup streaming
THE BEST BLACK FRIDAY DEAL YET (Ad)
Cuba's informal market finds new space on growing internet
Bird flu prompts slaughter of 1.8M chickens in Nebraska

Here’s What a Strong US Dollar Means for Your Stocks

Key Points

  • The U.S. dollar index is up 17% this year hitting 20-year highs
  • Netflix stock is down (-60%) versus the Nasdaq index down (-33%). Netflix gets 60% if its sales from overseas
  • Humana stock is up 4% for the year as it collects 90% of its revenues from the U.S. state and federal government health benefits programs

 

Here’s What a Strong US Dollar Means for Your Stocks The headlines pointing out the strong U.S. dollar is becoming commonplace these days. A strong U.S. dollar may be good for U.S. citizens buying foreign products as their buying power rises, but it’s detrimental for overseas buyers and U.S. companies that sell to them. When the U.S. dollar is strong, international buyers have to pay more of their currency for the same U.S. goods and services leading to a drop in demand or a search for alternative sellers. A combination of strong U.S. dollar and rising inflation is a one-two punch in the gut for demand for U.S. products and services to overseas buyers. A strong U.S. dollar also tends to result in a weak stock market as they also move inversely. Keep in mind, the strength or weakness of a currency is based on its comparison to another currency. The U.S. dollar index measures the dollar against a basket of other currencies and it's up 17% for the year compared to (-25%) for the S&P 500 and (-33%) for the Nasdaq.

What Causes a Strong U.S. Dollar?

When the U.S. has relatively the strongest economy with the least geopolitical risks compared to other nations, global investors move money into the U.S. dollar. By selling their currency to buy U.S. dollar, they weaken their currency and strengthen the dollar. The euro has suffered due to the geopolitical tensions emanating from the Ukraine war. The British pound has fallen off a cliff to a record low due to its self-inflicted financial crisis which prompted a misguided fiscal stimulus package meant to kickstart the economy but could backfire and stoke more inflation.


The Fed Exacerbates

The U.S. dollar strength is also fueled by the U.S. Federal Reserve (Fed) interest rate hikes. The U.S. dollar as pretty much outperformed all other assets classes this year. Up until a few months ago, the markets didn’t really care too much for the strong U.S. dollar impacting earnings since volatility was taken into account with constant currency metrics. Constant currency refers to using a fixed exchange rate that eliminates volatility and fluctuations when reporting financial performance. Frankly, the markets gave a pass to companies that reported weaker earnings due to FX currency volatility.  

No More Hall Passes

However, this all changed when markets realized the temporary nature of fluctuating FX had transformed into a deadly grind with no reprieve in sight as the U.S. dollar index hit 20-year highs. The U.S. dollar hit a 37-year high against the pound sterling in the past week. As more companies miss their earnings estimates due to the strong U.S. dollar, stocks get punished sending markets even lower as the contagion spreads and grows. This is evidenced by the sharp sell-off in shares of cloud database giant Oracle (NASDAQ: ORCL). The Company reported impressive earnings as its saw its Cloud Revenues jump 45% year-over-year (YoY) to $3.6 billion or 50% in constant currency. However, Oracle missed its fiscal Q1 2022 EPS estimates by (-$0.04) and guided fiscal Q2 2022 EPS lower as a result of the strong U.S. dollar hurting its overseas business. Shares started the day up 2% the following day at $79.41 as it completely reversed giving back all gains and continuing to sell-off for the next two weeks to hit a low of $61.07. Footwear and athletic apparel maker Nike (NYSE: NKE) expects gross margins to contract 350 to 400 bps from FX volatility as its stock collapsed (-12.8%) after reporting earnings. Adobe (NASDAQ: ADBE) saw its shares collapse and accelerate lower as its business is seeing a (-2%) to (-3%) hit from the strong U.S. dollar in addition to overpaying 50X sales for its Figma acquisition. While Salesforce (NYSE: CRM) is still doing gangbusters business, the strong dollar will cost them over $800 million this year.

The Winners   

Globalization was the goal for companies seeking to grow their scale. However, a strong U.S. dollar actually punishes them. For investors, it’s important to know the revenue mix of domestic and foreign revenues of their companies. Companies that do most or all of their business in the U.S. should perform better than multinationals. Healthcare companies like Humana (NYSE: HUM) derive all their revenues in the U.S. with over 90% of their income from federal and state health benefits programs. This is why shares are up 4% versus down (-25%) for the S&P 500.

The Losers

U.S. importers benefit from a strong U.S. dollar, but U.S. exporters of goods and services get shortchanged with a strong U.S. dollar. While the U.S. stock market has fallen this year, companies with a major chunk of their revenues derived from overseas are getting hit even harder than the benchmark indexes. For example video streaming giant Netflix (NASDAQ: NFLX) shares are down (-60.5%) compared to the Nasdaq index down (-33%) for 2022. Netflix derives nearly 60% of their revenues from overseas. Companies in emerging economies get punched twice in the gut as servicing U.S. dollar denominated debt gets more expensive as does commodities priced in U.S. dollars..  

Should you invest $1,000 in Oracle right now?

Before you consider Oracle, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Oracle wasn't on the list.

While Oracle currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Oracle (ORCL)
2.6264 of 5 stars
$82.72+0.2%1.55%39.39Hold$88.58
Salesforce (CRM)
3.0865 of 5 stars
$153.35+0.7%N/A283.98Moderate Buy$224.24
NIKE (NKE)
2.5311 of 5 stars
$105.96-0.6%1.15%30.02Moderate Buy$115.25
Adobe (ADBE)
2.815 of 5 stars
$334.30-0.4%N/A32.97Hold$405.42
Netflix (NFLX)
1.7755 of 5 stars
$285.54-2.0%N/A25.59Hold$311.13
Humana (HUM)
2.7042 of 5 stars
$540.95+0.5%0.58%24.53Moderate Buy$579.00
Compare These Stocks  Add These Stocks to My Watchlist 

Jea Yu

About Jea Yu

Contributing Author: Trading Strategies

With over 20 years of active participation and analysis of the US equities, options and futures markets, Mr. Yu brings fresh insights into the workings of the financial markets. He has published four books by esteemed publishers McGraw-Hill, John Wiley & Sons, Marketplace Books and Bloomberg Press. His brainchild, the Underground Trader, was voted Forbes Best of the Web for four consecutive years under the active trader category. He has been a featured speaker all over the country at various expos and seminars who enjoys a standing-room-only reception in the largest convention halls from New York to Las Vegas. He has been quoted and featured in USA Today, Wall Street Journal, Traders Magazine and the Financial Times and various trade publications like Stocks & Commodities, Active Trader and Online Investor. Mr. Yu has a B.A. in Liberal Arts and minor in Business Administration from the University of Maryland.
Contact Jea Yu via email at JeaYu21@gmail.com.