The U.S. dollar’s strength has been unrelenting, with the trade-weighted dollar index at its highest level since March 2020 and up 8.4% year-to-date.
Since the start of the year, we have seen underperformance in stocks that derive a higher-than-average share of their revenues from countries outside the United States. Indeed, the S&P 500 Foreign Revenue Exposure Index is down 24.5% year-to-date compared to the 20.5% decline for the S&P 500. In fact, based on their historical relationship, we expect that the move in the dollar thus far will exert a drag of just under 5% on S&P 500 revenues. Assuming an unchanged profile for margins, this would also equate to a 5% hit to earnings, yet another headwind — in addition to a rapidly slowing economy — heading into the Q3 earnings season.