The dollar is now at a 20-year high – and it's currently going parabolic.
You can see this by looking at the U.S. Dollar Index below. This is a measure of the value of the U.S. dollar relative to the value of a basket of six major global currencies – the Euro, Swiss Franc, Japanese Yen, Canadian dollar, British pound, and Swedish Krona.
Here's its performance over the past 20 years:
So, we have a historically strong dollar barreling through global economies like a wrecking ball.
How do you think that will impact Q3 earnings season that begins in just a few weeks?
Well, here's FactSet, which is the go-to earnings data analytics company used by the pros:
For Q3 2022, the estimated earnings growth rate for the S&P 500 is 3.2%. If 3.2% is the actual growth rate for the quarter, it will mark the lowest earnings growth rate reported by the index since Q3 2020 (-5.7%).
…Ten sectors are expected to report lower earnings today (compared to June 30) due to downward revisions to EPS estimates.
…Both analysts and companies have been more pessimistic in their earnings expectations for Q3 compared to recent averages.
As a result, estimated earnings for the S&P 500 for the third quarter are lower today compared to expectations at the start of the quarter.
On a year-over-year basis, the index is expected to report its lowest earnings growth since Q3 2020.
The strength of the dollar is a major contributing factor to why these earnings forecasts are coming in lower.
Goldman Sachs estimates that a 10% appreciation in the dollar reduces earnings by companies in the S&P 500 by roughly 2%-3%.
Well, since July 1 (the beginning of Q3), the U.S. Dollar Index has climbed 9.15%.
That's pretty much a 3% earnings haircut right there.
Jeff Remsburg
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