Softer dollar may be stock silver lining amid Washington drama

NEW YORK: With S&P 500 companies set to notch their strongest quarterly earnings growth in about six years, a weaker U.S. dollar may help keep the profit momentum rolling and support share prices in the weeks to come.
After a dramatic week in Washington that rattled financial markets, one possible silver lining for stock investors was the weaker dollar, which can support earnings of U.S. multinational companies with large foreign operations.
The dollar weakened 0.5 percent against a basket of currencies on Wednesday following reports that U.S. President Donald Trump tried to interfere with an investigation into his former national security adviser's ties with Russia, revelations that also sparked the S&P 500's biggest one-day drop in eight months.
The currency was on track for its biggest weekly percentage drop in a year, and so far in 2017 the dollar has pulled back 5 percent, having erased its post-U.S. election gains.
Movements in the dollar can be significant for U.S.-based multinational companies. The stronger the greenback is against other currencies, the less valuable foreign sales become when they are translated back into the U.S. currency for reporting purposes.
"A weaker dollar is arguably good for any company that sells overseas," said Alan Gayle, director of asset allocation at RidgeWorth Investments in Atlanta. "If you’re talking about a silver lining, if you are a large-cap company that has significant overseas sales exposure, then this is an emerging positive."
First-quarter results from U.S. companies have bolstered confidence in equities, with the market reaching record highs earlier this month even as events in Washington threatened Trump's promises of tax cuts, infrastructure spending and reduced regulation that had helped fuel a rally in stocks.
With more than 90 percent of the S&P 500 having reported, first-quarter profits are on pace to rise by 15.2 percent, according to Thomson Reuters I/B/E/S.
Second-quarter earnings are expected to rise by 8.5 percent, a figure that could swell depending on currency moves. The dollar has fallen 3.2 percent during the second quarter alone.
Companies with significant global operations have already showed strength as the dollar has weakened in the firstquarter.
S&P 500 companies with more than half their revenue from outside the United States have reported a 13.2 percent increase in earnings, when excluding the energy sector. That compares with a 10.6 percent increase for companies with half or more of revenues coming domestically. Energy sector results are skewing overall S&P 500 earnings because of year-ago negative results.-Agencies