Market News: Strong Dollar impacts U.S. Multinational Corporate Earnings
Due to high inflation and consistent rises in interest rates by Fed since 2021, the dollar has gained an 8.9% increase in its value, causing profound impacts on the global economy. That would be its greatest annual increase since 2014. The strong value of the dollar had impacted multinational companies from various perspectives. According to FactSet on Monday, companies in the S&P 500 that receive more than half of their sales from outside the U.S. are projected to experience an 8.7% decline in fourth-quarter earnings. In contrast, firms having the majority of their sales in the United States would likely experience a 3% decline in earnings. Apple, for example, issued its first quarterly earnings report and showed a decline in revenue in almost 4 years. Apple reported an expectation of a 5% decline in years’ revenue, citing a difficult foreign currency market. IBM posted flat sales in the fourth quarter, with the strong dollar dinging the top line by more than $1 billion. IBM recently announced a 3900 layoff, trying to minimize operating costs. Caterpillar, one of the largest multinational manufacturing and machines corporations, also announced that the strong dollar’s rise negatively affected their performance, causing a $500 million loss in the fourth quarter. Lastly, the strong dollar also causes impacts on the fast-food industry. Major fast food companies, like McDonald’s, anticipate currency translation to reduce first-quarter profits per share by 7 cents to 9 cents.
Despite the fact that many large corporations had suffered from the rise in the dollar value, it is also an ideal time to conduct some investment. The Federal Reserve is in inflation-fighting gear, and its fast tightening has contributed to the dollar’s ascent against other currencies this year. The U.S. dollar is the world’s reserve currency and is used to sell goods across international borders, therefore fluctuations in its value are felt globally. Consequently, the crucial questions are where interest rates will peak and when the Fed will cease raising rates. According to the consensus forecast of Fed officials, the ultimate goal range for interest rates is between 5% and 5.25 %, indicating that the Fed would likely raise rates by another 50 basis points before retreating. Many economists indicated that during March or April, Fed would plan to cease the hiking in interesting rates. Hence, it is conducive for us to plan ahead for investments by purchasing previously affected firms. Once the interest fall, which will happen shortly, such equities could enjoy a boost in their values.
