‘Exceptionally’ Weak Dollar Is the Earnings Boost S&P 500 Needs

  • Greenback may end the year 13% lower, meaning a 6.5% EPS boost
  • Dollar Index Spot has had its weakes start to a year since ’02

Kumar Says Weaker Dollar Won’t Save U.S. Equities

The U.S. dollar, down 8 percent this year, will probably weaken further, according to Morgan Stanley. That’s primarily good news for American stock investors.

The greenback may finish 2017 down 13 percent, handing S&P 500 companies a 6.5 percent boost to their rolling 2018 per-share estimates, Morgan Stanley analysts including Michael Wilson said in a note Monday. Even if the dollar stays where it is now, they’ll get a 4 percent earnings bump.

The U.S. Dollar Index has had the weakest start to a year since 2002 amid political uncertainty at home and concern that economic stimulus will be pared in Europe. The measure declined 2.3 percent in the past 10 trading days. Morgan Stanley calls it “exceptionally and unexpectedly weak.”

“Given the very strong U.S. dollar in the second half of 2016, the tail wind will only get stronger in the second half of 2017 even if the dollar remains flat from here until the end of the year,” Wilson said. Weak dollar “has had a enormous impact on financial conditions - making them easier even as central banks have become hawkish.”

  • Weaker dollar should make the fourth-quarter estimate of a 13 percent bottom-up EPS year-over-year growth achievable, Morgan Stanley says
  • More than two-thirds of U.S. companies that have already reported quarterly earnings in this earnings season had an EPS beat, data compiled by Bank of America Corp. show.
  • At 17.8 times projected earnings, the S&P 500’s multiple is above its 5-year average of 15.6.
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