The suddenly unstoppable U.S. dollar is posing a triple threat to American companies' profits: driving up the costs of doing business overseas, suppressing the value of non-U.S. sales and, perhaps most worryingly, signaling weak international demand.
The dollar has been on a tear, with an index tracking it against six other major currencies notching roughly an 8% gain since the end of June. Few analysts see its breakout performance stalling out anytime soon since the U.S. economy stands on much firmer footing than most others around the world, Europe's in particular.
For companies in the benchmark S&P 500, that's a big headwind because so many are multinationals, and as a group they derive almost half of their revenue from international markets.
And while investors and analysts have begun to figure in the negative effects of a fast-strengthening dollar with regard to the approaching third-quarter reporting period, the risk to the fourth quarter and 2015 remains largely unaccounted for.
For instance, third-quarter profit-growth expectations for S&P 500 companies have fallen back to 6.4% from about 11% two months ago, Thomson Reuters data showed.
By contrast, the fourth-quarter growth forecast is down just slightly, to 11.1% from a July 1 forecast of 12%. And profit-growth estimates for 2015 have actually increased in that time from 11.5% to 12.4%.
