Fed Rate Ambivalence a Boon for Exporters Rallying Twice S&P 500

FOMC Minutes: Figuring Out Who Said What
  • Stocks that get more than 75% of sales from overseas surging
  • Fed said in minutes Wednesday that it wants to see more data

While the Federal Reserve keeps trying to stimulate the U.S. economy, it’s actually companies that get a majority of their revenue from overseas that have benefited most.

Stocks show it, with companies that have more than 75 percent of their sales outside the U.S. rising almost twice as fast as everything else since the S&P 500 Index dropped to a three-month low on June 27. They’re up 17 percent since that bottom, compared with 9.1 percent in the index.

With traders betting the Fed will keep benchmark lending rates near zero until after the elections in November and probably into 2017, the dollar has fallen almost 3 percent since the end of May, when it reached a two-month high. That’s spelled relief for export-reliant companies whose profitability takes a hit when the U.S. currency is rising.

“The headwinds facing multinationals have diminished significantly, and that’s being reflected in valuations and earnings,” said Alan Gayle, a senior strategist at RidgeWorth Investments in Atlanta, which has about $37 billion in assets. “It’s tough enough selling into an international market where global growth is relatively slow, but if you’re also fighting that currency headwind, that makes it doubly tough to succeed. The path is much clearer now.”

The Bloomberg Dollar Spot Index fell 0.3 percent at 9:45 a.m. on Thursday, its fourth loss in five days, while the S&P 500 slid less than 0.1 percent.

Count Qualcomm Inc. among the companies benefiting from a stronger dollar. The maker of semiconductors, which gets 99 percent of its revenue from outside the U.S., has surged 30 percent since the Bloomberg dollar index reached a record high on Jan. 22. That’s twice the return for the S&P 500 over the same period. The company grew earnings by 17 percent in the latest quarter, while profits for all members of the broader benchmark gauge are forecast to have fallen 2.5 percent.

There’s also Priceline Group Inc., which gets 80 percent of sales from overseas. It saw earnings expand by 12 percent last quarter and is up 28 percent since Jan. 22. BorgWarner Inc. makes 75 percent of its profit from outside the U.S. It’s earnings rose by 12 percent in the previous period and the stock has climbed 17 percent since mid-January.

A weaker dollar is “important because it has a direct impact of top-line revenue,” said Gayle. “It’s clearing the path to more earnings growth in these companies. It’s good news.”

The greenback erased gains after minutes from the Fed’s July meeting showed officials are waiting to see more data before making a judgment on the labor market and overall economic activity. While Fed officers were ultimately split on whether an interest-rate increase is warranted soon, investors still see just a 24 percent chance of a hike in November, and a 48 percent probability of a December move.

The previously strong dollar isn’t the only global headwind that’s ebbed in the last several months. Central banks from England to Japan have promised to add to already unprecedented monetary stimulus, while a Bloomberg index tracking commodities has climbed 18 percent since falling to a record low in January. Further, a Citigroup Inc. gauge of economic strength in major economies entered positive territory in June for the first time in 2015.

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