Strong dollar wipes out stocks of big-business firms abroad

  • According to Goldman Sachs, stocks of companies with large overseas sales lag behind domestically-focused firms.
  • A basket of stocks of domestically focused companies outperformed those with a foreign bias by nine percentage points.
  • But outperforming in this bear market just means a smaller percentage loss.

Stocks on Wall Street have been hammered into one


bear market

this year, but those of companies that generate the majority of their sales outside the US have lagged those of companies that are domestically focused, Goldman Sachs said this week.

The burglary in the The S&P 500 and Nasdaq Composite have dragged major indexes down more than 20% in 2022, with the tech-rich Nasdaq sitting on a 26% loss.

An analysis by Goldman Sachs released on Friday showed that stock losses were particularly painful for companies with a high proportion of international sales. The investment bank said a basket of stocks it tracks with high domestic sales risk has outperformed a basket of multinational stocks by nine percentage points this year.

This represents a 24% drop in the international basket, which is greater than the 15% drop in the national bundle. Goldman’s international and domestic sales baskets each contain 50 S&P 500 stocks with the largest share of sales outside the US and domestic.

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

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

The US Dollar Index, which measures the greenback’s performance against six other currencies, has soared to new 20-year highs above 105 this year. But the dollar’s strength can hurt multinationals in part, making their products more expensive for holders of other currencies.

What is also putting pressure on the basket of multinationals is the IT sector, as it derives 59% of its revenues from abroad. Tech stocks have tumbled as rising interest rates may spell weak prospects for future earnings. The materials sector is the only other that generates most of its sales abroad, at 50%.

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


10-K

annual corporate filings.

At the regional level, Monolithic Power, Qualcomm and Las Vegas Sands were said to be the companies at greatest risk to revenue in Greater China. In Greater Europe, the list was headed by travel services company Bookings and gold miner Newmont.

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


REIT

has the greatest exposure to sales in Africa and the Middle East.

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