Business Columns & Blogs

Week ahead: Strong dollar’s impact overstated (for now)

Tom Hudson
Tom Hudson

When Americans consider the U.S. dollar, the most common thought is likely, “How do I get more of them?”

For us, one dollar is one dollar. That is, unless we’re traveling overseas or our investments are.

So, for shareholders and stock mutual fund owners, it’s worth watching how the U.S. dollar is talked about as the third-quarter earnings season picks up pace in the week ahead.

The dollar blame game began last week with Alcoa, whose quarterly financial results were disappointing, leading to the company’s worst stock slide in five years.

Why the poor results?

Well, according to Alcoa, one contributing factor to its 15 percent drop in profits was – you guessed it – the strong dollar.

You see, when the dollar rallies and foreign currencies are worth less, foreign sales – an important consideration for America’s big businesses – are also worth less.

That’s why Alcoa hasn’t been alone in mentioning the dollar in explaining its financial performance.

Among the more than two dozen Standard & Poor’s 500 index companies that have already reported earnings, 15 said the strong dollar hurt their profits, according to Pavilion Global Markets, as reported by Bloomberg.

And while investors are expecting to see that overall profits shrank in the third quarter, which would mark the sixth straight quarter of year-over-year declines, there’s another thing worth mentioning: The dollar didn’t rise appreciably in the third quarter.

It has gained on the British pound, which since the United Kingdom’s vote to exit the European Union, has been pounded. But only 3 percent of S&P 500 company revenues come from the U.K., according to market data firm FactSet.

So while the dollar does have the ability to pinch profit growth, its current strength is presently being used as more of a convenient excuse for disappointing results.

As with anything in business, though, that could certainly change.

Financial journalist Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami, where he is the vice president of news. Follow him on Twitter @HudsonsView.

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