Strong dollar crushes corporate stocks with big companies overseas

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  • According to Goldman Sachs, stocks of companies with significant overseas sales lag domestically focused companies.
  • A basket of stocks of domestically focused companies outperformed companies with a foreign bias by nine percentage points.
  • But an outperformance in this bear market simply means a lower percentage loss.

Wall Street stocks were hammered in a


bear market

this year, but those of companies that make the bulk of their sales outside the United States have trailed those of companies that are domestically oriented, Goldman Sachs said this week.

The collapse of the The S&P 500 and Nasdaq Composite have taken major indices down more than 20% in 2022, with the tech-heavy Nasdaq sitting on a 26% loss.

Goldman Sachs analysis released on Friday showed the pain of inventory losses has been particularly acute for companies with significant international sales. The investment bank said a basket of stocks it tracks with heavy exposure to domestic sales has outperformed a basket of multinational stocks by nine percentage points this year.

That leaves the international basket down 24%, wider than the 15% drop in the domestic basket. Goldman’s international and domestic sales baskets each contain 50 S&P 500 stocks with the largest share of non-U.S. and domestic earnings.

Foreign sales in 2021 accounted for 29% of the $14 trillion in total S&P 500 revenue, up from 28% in 2020.

What has helped provide upside support for U.S.-focused companies is the rise in the trade-weighted U.S. dollar, Goldman said.

The U.S. dollar index, which measures the performance of the greenback against six other currencies, hit new 20-year highs above the 105 level this year. But the strength of the dollar may hurt multinational companies in part because it makes their products more expensive for holders of other currencies to buy.

Also putting pressure on the basket of multinationals is the information technology sector, as it derives 59% of its revenue from abroad. Tech stocks have plunged as rising interest rates may reduce the outlook for future earnings. The materials sector is the only other sector that derives most of its revenue from abroad, at 50%.

The largest region of non-US exposure was Asia Pacific at 9%, or $1 trillion, followed by Europe at 6%, or $846 billion. But only 3%, or $370 billion, of S&P 500 revenue came explicitly from Greater China, said Goldman, who conducted its analysis on recent


10-K

company annual returns.

On a regional basis, he said Monolithic Power, Qualcomm and Las Vegas Sands were the companies most exposed to revenue from Greater China. In Greater Europe, the list was dominated by travel services company Bookings and gold miner Newmont.

APA, the parent company of oil and gas company Apache, and American Tower, a


REITs

has the largest sales exposure in Africa and the Middle East.

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