Since roughly 40% of S&P 500 companies’ sales are generated abroad, equity strategists expect the strong U.S. dollar will weigh heavily on corporate earnings as the third-quarter corporate reporting season begins in earnest this week.
Analysts presently expect S&P 500 index members to see earnings growth of 2.4% this quarter, according to FactSet. Wall Street forecasts tend to be conservative, and companies tend to overshoot, like they did last quarter. Huw Roberts, head of analytics at Quant Insight in London, found that semiconductors tend to be among the industries most vulnerable to a strong dollar.
This has already largely been factored into analysts expectations. According to Stovall, analysts see earnings contracting 13.8% on an annualized basis, the worst expected performance among the index’s 11 sectors.