Multinationals spur US rally on weak dollar
Tuesday, 9 October 2007
Francesco Guerrera and Michael Mackenzie from New York
Multinationals have emerged as the main drivers of the current US stock market rally as investors move to capitalise on the weak dollar by buying into companies with large overseas earnings.
The strong performance of international companies such as Procter & Gamble, Coca-Cola and Intel over the past six weeks has pushed US stocks to new highs, helping the market shrug off the ongoing credit squeeze and the growing risk of a US recession.
"2007 will go down as the year the rest of the world saved America," said Joseph Quinlan, chief investment strategist at Bank of America. "The belief that the dollar is going to weaken further is prompting investors to own international large-cap stocks."
The strong showing by multinationals comes as US and foreign fund managers switch away from small capitalisation and US-centred companies they had favoured in the recent past.
The stock market strength contrasts with previous rallies following interest rate cuts, which tended to benefit domestically-focused companies such as regional banks and retailers.
This time, after the US Federal Reserve cut rates by 50 basis points on September 18, multinationals rallied while retailers such as Wal-Mart and Home Depot remained dogged by concerns over the health of US consumer spending.
The weakness in the dollar, which has hit a series of all-time lows against major currencies, benefits multinational companies in two ways: it makes their US-made products cheaper on international markets and increases the dollar value of their overseas earnings.
The Dow Jones Industrial Average has risen nearly 10 per cent in the past six weeks, hitting a new record high on Monday.
Companies with large overseas operations have been at the forefront of the rally. Since the Dow's previous record - on July 19 - eight of the top ten performers have been multinational companies, led by P&G but also including Hewlett-Packard, Johnson & Johnson and McDonald's.
Consumer discretionary stocks, which include retailers and homebuilders, are expected to suffer a 4.0 per cent earnings slide. In July, analysts were forecasting a 3.0 per cent rise in the sector. Healthcare, with expected growth of 12 per cent, and technology, with 10 per cent, have the highest growth rates predicted for the third quarter.
Earnings growth is expected to rebound across the board, reaching 11.5 per cent in the final quarter of the year, and remain strong into 2008, when earnings are seen rising 12 per cent.
(Under syndication
arrangement with FE)
Multinationals have emerged as the main drivers of the current US stock market rally as investors move to capitalise on the weak dollar by buying into companies with large overseas earnings.
The strong performance of international companies such as Procter & Gamble, Coca-Cola and Intel over the past six weeks has pushed US stocks to new highs, helping the market shrug off the ongoing credit squeeze and the growing risk of a US recession.
"2007 will go down as the year the rest of the world saved America," said Joseph Quinlan, chief investment strategist at Bank of America. "The belief that the dollar is going to weaken further is prompting investors to own international large-cap stocks."
The strong showing by multinationals comes as US and foreign fund managers switch away from small capitalisation and US-centred companies they had favoured in the recent past.
The stock market strength contrasts with previous rallies following interest rate cuts, which tended to benefit domestically-focused companies such as regional banks and retailers.
This time, after the US Federal Reserve cut rates by 50 basis points on September 18, multinationals rallied while retailers such as Wal-Mart and Home Depot remained dogged by concerns over the health of US consumer spending.
The weakness in the dollar, which has hit a series of all-time lows against major currencies, benefits multinational companies in two ways: it makes their US-made products cheaper on international markets and increases the dollar value of their overseas earnings.
The Dow Jones Industrial Average has risen nearly 10 per cent in the past six weeks, hitting a new record high on Monday.
Companies with large overseas operations have been at the forefront of the rally. Since the Dow's previous record - on July 19 - eight of the top ten performers have been multinational companies, led by P&G but also including Hewlett-Packard, Johnson & Johnson and McDonald's.
Consumer discretionary stocks, which include retailers and homebuilders, are expected to suffer a 4.0 per cent earnings slide. In July, analysts were forecasting a 3.0 per cent rise in the sector. Healthcare, with expected growth of 12 per cent, and technology, with 10 per cent, have the highest growth rates predicted for the third quarter.
Earnings growth is expected to rebound across the board, reaching 11.5 per cent in the final quarter of the year, and remain strong into 2008, when earnings are seen rising 12 per cent.
(Under syndication
arrangement with FE)