The weaker dollar could give Wall Street's bull more room to run, and boost the earnings growth of multinationals and commodities companies in the second half of the year.
With the latest drubbing, strategists have been taking a look at the impact of the slumping dollar on corporate profits, and it could provide an unexpected windfall. The U.S. Dollar index is down 8 percent so far this year, and the S&P 500 is already up 10.3 percent.
Morgan Stanley analysts say for every 1 percent drop in the dollar, S&P 500 earnings could gain a half percentage point. The analysts said the dollar impacts earnings on a rolling basis and it should show up as a positive in the second half. In an example, they noted that an 8 percent decline in the dollar index by year-end would equate to a 4 percent gain in 2018 earnings per share. The firm said the dollar could fall as much as 5 percent more, and if that happens, the boost to earnings could be 6.5 percent.
Analysts from research firm Strategas also said they see a boost for stocks.
Strategas said FirstCall estimates that the impact of this could be as much as a $2 to $3 lift to [S&P 500] earnings in coming quarters. Strategas forecasts $124 for 2017 for S&P 500 companies and $135 for 2018.
Jim Paulsen, chief investment strategist at The Leuthold Group, said while earnings have been solid this quarter, companies appear more guarded in their comments. But the falling dollar hasn't become a topic of discussion yet, and that could help the outlook for companies with overseas profits.
Reference: CNBC
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