The surge in the dollar is darkening the earnings outlook for US multinational companies from Amazon.com Inc. to Apple Inc., leaving investors to question how much longer the stock rally can withstand the greenback’s strength.
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Published Feb 08, 2025 • 3 minute read
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(Bloomberg) — The surge in the dollar is darkening the earnings outlook for US multinational companies from Amazon.com Inc. to Apple Inc., leaving investors to question how much longer the stock rally can withstand the greenback’s strength.
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The world’s reserve currency has climbed nearly 7% from its September low near its strongest level since November 2022, threatening Big Tech shares with lofty valuations that have powered the S&P 500 Index’s bull market for two years on soaring profit growth.
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Even as the greenback eases on the US delaying tariffs on Canada and Mexico, demand for protection against the dollar further appreciating is at the highest in two years, supercharged by President Donald Trump’s economic policies.
“It’s really the unexpected rally in the dollar that causes the most damage to corporate bottom lines,” said Howard Du, a currency strategist at Bank of America.
In fact, nearly 40% of S&P 500 company earnings calls have mentioned “FX,” with Apple expecting those headwinds to persist, according to Goldman Sachs Group Inc. While Amazon’s latest quarter was generally positive, investors are concerned about first-quarter guidance that was below expectations partly due to the impact of a big currency drag. A strong dollar reduces export demand and the value of overseas earnings.
“Dollar strength could very much hurt these companies even absent tariffs and weigh on parts of their businesses,” said Patrick Fruzzetti, portfolio manager at Rose Advisors.
When the greenback climbed more than 25% in mid-2014, and then again by the same magnitude between 2021 and 2022, S&P 500 companies experienced an earnings recession. The dollar’s 10% gain coupled with tariff shocks in early 2018 during the first Trump administration contributed to another hit to profits and a subsequent near-20% plunge in the S&P 500 that year.
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There’s a broad consensus that the dollar is “going to stay higher” and “persist into 2025,” said Paula Comings, the head of FX sales at U.S. Bancorp.
While stock investors tend to look past the negative impact of a strong dollar on earnings with equity valuations trading near all-time highs, they are paying close attention. A Bloomberg index tracking the so-called Magnificent Seven stocks is priced at 30 times profits projected over the next 12 months, which is up from about 20 at the end of 2022 and well above the S&P 500 at 22 times.
With the US imposing a 10% tariff on all Chinese goods, the Magnificent Seven could face some issues. Tesla Inc. has the highest revenue exposure to China at more than 20%, followed by Nvidia Corp. and Apple at roughly 16%, according to Ryan Grabinski, director of investment strategy at Strategas. Only Meta Platforms Inc. has revenue exposure to Canada, at just 2.1%, while none of the Mag 7 have material exposure to Mexico.
“Chinese tariffs and any subsequent retaliation from China is most concerning for the market from a revenue standpoint,” Grabinski said.
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To Gina Martin Adams, chief equity strategist at Bloomberg Intelligence, tariffs are a risk given that international companies depend on the US market more so now than when Trump first imposed tariffs in his first term.
“The dilemma is whether multinational companies will reshore into the US or look for other trading partners and revenue destinations instead,” Martin Adams said.
The dollar, stocks and earnings have been closely correlated since the pandemic — an unusual development that could revert back to normal if the currency’s rise continues, Martin Adams explained. That would spell trouble for companies that have powered the profit recovery, including shares of Nvidia, Alphabet Inc., Amazon, Tesla and Broadcom Inc. — all of which tend to be more sensitive than the overall market to big dollar moves.
Of course, the dollar, stocks and earnings did not move in lockstep for most economic cycles from 2010 to 2019. But that changed after the pandemic upended normal business for companies, so investors may be left with a false sense of security that corporate profits and stocks can weather significant dollar strength, Martin Adams added.
Meanwhile, a rising US dollar is thought to offset some of the risk from Trump’s proposed tariffs by muting the levies’ inflationary impact. The equity market is also focused on the upside of the president’s pro-growth agenda.
Yet, the type of tax cuts being eyed in Washington may only reduce the tax burden on the S&P 500 by about half as much as the 2017 package, according to BI. That adds another hurdle for Corporate America to meet the steep earnings-per-share growth north of 20% baked into the benchmark index over the next 12 months.
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