The Dollar's Impact on Stocks This Month

by Bespoke Investment Group

The US Dollar index is up about 4.5% this month, which is a big move for the currency. The move higher in the dollar has coincided with a move lower in stocks. The average stock in the S&P 500 had declined 2.6% this month through yesterday's close. 

Over the past few years, we have stressed how important it is to know what percentage of revenues a company receives from outside of the US versus inside the US because of how changes in the dollar can impact top-line numbers. When the dollar is declining, which is the way it has trended over the past decade, US companies that generate a large portion of their revenues outside of the US (the internationals) stand to benefit. When the dollar is rallying, it benefits US companies that do most or all of their business inside of the US (the domestics).

With the dollar up so much this month, you would expect the domestics to be outperforming the internationals, and we ran our decile analysis on the S&P 500 to see if this has been the case. To run the analysis, we broke the index into deciles (10 groups of 50 stocks) based on a stock's percentage of international revenues and then calculated the average performance of stocks in each decile so far this month. As shown in the chart below, the decile of stocks in the S&P 500 that generate the largest portion of their revenues outside of the US has averaged a decline of 4.60% so far this month, while the decile of stocks that generate the least amount of sales outside of the US has averaged a decline of just 1%. Basically decile performance this month gets better and better as international revenues decline.

Over at Bespoke Premium, yearly members have access to our International Revenues Database which shows foreign versus domestic sales for each stock in the Russell 1,000 and S&P 500. If you have an opinion on the future direction of the dollar and are wondering which stocks to play based on this, the International Revenues Database is quite handy. Become a yearly Bespoke Premium member today to receive access to the database.

See the original article >>