Rising Dollar Nears Key Level; May Spell Trouble for Stocks
• The U.S. dollar (measured by the Dollar Index, DXY) is approaching 106, which is a key resistance level. If it breaks above 106, it could lead to further dollar strength.
• Dollar strength makes U.S. exports less competitive globally, negatively impacting earnings of U.S. companies reliant on overseas sales.
• 15% of S&P 500 market value comes from multinationals that generate significant foreign sales. These stocks are vulnerable if the dollar strengthens further.
• The stock market has so far been resilient against the rising dollar. However, if the DXY breaks decisively above 106, investors may start pricing in weaker corporate earnings.
• If dollar climbs further, especially above 106, investors should exercise caution with stocks of companies reliant on foreign sales. Market turbulence could ensue.