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New York
CNN business
—
A strong dollar has been a headwind for the Dow and the US blue chip in the S&P 500 this year.
It’s understandable, as the surging US dollar eats into international interests companies like Apple
(AAPL)Procter & Gamble
(PG)McDonald’s
(MCD) and coca cola
(unit)all of which have considerable exposure abroad.
It may come as a surprise, however, that smaller US businesses, which tend to be more domestically focused, have held up poorly during this period of a stronger dollar.
what’s happening: of S&P Small Cap 600 The index plunged 22% this year, S&P 500′s 25% drop.and the Russell 2000Another indicator, mainly for small businesses, is also down 25%.
Given the profile of small-cap companies, this is unexpected. “Small-caps, which are more U.S.-centric in their earnings exposure, are less likely to be hit by a stronger dollar than larger multinationals,” said Jim Besoe, chief investment officer at Gentrust. I’m here.
Note that he said “low chance of injury”.
The problem is that investors are concerned. An economic slowdown is looming As such, any gains from a stronger dollar, or less exposure to the global economy, are offset by fears of a domestic recession.
again, dollar The US dollar index, which tracks the US dollar against the euro, pound, yen and several other currencies, surged 18% this year. This makes imports from foreign countries cheaper. That’s bad news for smaller US companies looking to compete with European and Asian rivals.
However The Federal Reserve will not aggressively raise interest rates forever. Markets are starting to price in the possibility of a modest rate cut at the end of 2023. In theory, this should start to depreciate the dollar somewhat.
in the meantime, Some experts believe there are parts of the US market where investors can hide, even among big companies.
“More domestically focused sectors, such as real estate and utilities, have been less exposed to these effects,” Glenmead investment strategists Jason Pryde and Michael Reynolds said in a report, adding that the U.S. dollar has fallen to international equities. said it remains a headwind for corporate earnings but may not continue to rise indefinitely.
Utilities stocks have held up slightly better than other stocks in the market. The S&P Utilities Index is down just 11% this year. This is partly because utility stocks are considered recession-proof. Consumers may pay their electricity and water bills even in a recession.
Utilities also pay big dividends. This is even more attractive in this volatile market.
But real estate stocks have plunged on concerns about a slowdown in residential and office real estate. The S&P Property Index plunged 33% this year.
To the point: Nothing is completely immune to the impact of a strong dollar. Indeed, some sectors may not have been hit as hard as others. Also, multinationals and foreign stocks fare worse than smaller companies with little or no international exposure.
But as long as the Fed continues to raise rates, the dollar is unlikely to fall significantly. This will continue to be a problem for US consumers and investors.
“It’s a challenging environment for everyone,” said David Zilek, chief investment strategist at Gateway Investment Advisors, adding that above-average market volatility is likely to continue until at least the first quarter of 2023. He points out that this is likely to continue.
Britain’s new Chancellor of the Exchequer already reversed This was supposed to be the flagship economic plan of British Prime Minister Liz Truss.Jeremy Hunt said he’s putting ‘almost everything’ back together major tax relief It was introduced by Kwasi Kwarteng, the former Chief Financial Officer of Truss. Kwarteng was sacked on Friday.
As my colleague Julia Horowitz reports, this is a stunning reversal. This amounts to a “watering down” of Truss’ growth plan. But it appears that a backtrack was needed to reassure nervous investors as the value of the pound plummeted. in the last few weeks Concerns over government spending plans.
Even US President Joe Biden was skeptical of Britain’s trickle-down proposal, saying the idea of drastic cuts aimed at benefiting wealthy individuals and businesses in particular was a “mistake”.
truss and hunt not out of the woods Still, but.
The UK government has promised to keep subsidies until April 2023, keeping consumers paying less for energy as costs rise to prohibitively high levels. However, its subsequent development is unknown.
Chinese leader Xi Jinping unprecedented third semester as leader of the Communist Party. As CNN Business’s Laura He points out, Xi faces many challenges right now. Big challenges ahead to get the Chinese economy back on track.
China’s strict zero Covid policy hasn’t stopped the pandemic from hurting growth. Youth unemployment is soaring and Covid lockdowns are also leading to increased social unrest.
All the while, China’s housing market is in the middle of a meltdown. Concerns are also growing that China’s continued crackdown on large businesses and wealthy individuals could further hurt the economy.
In a perhaps ominous sign, China announced on Monday that it would indefinitely delay the release of this week’s GDP and other economic data.
On tap this morning:
Johnson & Johnson Earnings
(JNJ)Goldman Sachs
(GS)Lockheed Martin
(LMT)Truthist
(TFC)State Street
(STT) and Hasbro
(have)
After exit comes:
Earnings from United
(UAL) and netflix
(NFLX)
Wednesday:
US housing starts. UK and European inflation.Procter & Gamble earnings
(PG),Traveler
(TRV)Baker Hughes
(BKR)Tesla
(TSLA)IBM
(IBM) and Alcoa
(AA)
