For the past month, investors have been so fixated on the possibility of a rate increase, that they have been ignoring what’s really going to affect their investments in the short term: The havoc that the stronger dollar is wreaking on international sales.
The hard truth is that most of the S&P 500 is going to have to face the music. For the first time since Q3 2012, the S&P 500’s first-quarter earnings are expected to decline compared with Q1 2014.
As you know, nearly half of the S&P 500’s sales come from outside of the U.S., and the strong dollar is hindering these sales. Analysts are calling for a 3.6% drop in earnings, but I think that once we factor in earnings surprises and stock buybacks, it will be closer to a 2% decline.
But that’s expected to worsen over the next few quarters. The S&P 500 is not expected to post positive earnings growth at all this year, and the troubling thing is that most investors appear to be oblivious to this.
I’m willing to risk sounding like a broken record on this, because paying attention to the dollar’s movements — and acting accordingly — will save us a lot of heartburn this earnings season. Thanks to a lot of buying and selling in the past few months, my portfolio of blue-chip stocks is in fighting form for any market disappointments ahead and has a phenomenal track record when it comes to sales and earnings surprises.
Soon enough, investors are going to catch on that the S&P 500’s earnings are being crushed by the stronger dollar, but with the stock market still yielding much more than the bank, I do not expect investors to pull their money out of stocks. Instead, I expect them to seek the safety of fundamentally strong, domestic companies that pay dividends.
As always, I’ll be watching dividend-paying stocks like a hawk this earnings season, and I’ll keep you up to speed via the Updates Center and the Earnings Center.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
