RPT-Wall St Week Ahead-Dollar’s sudden weakness could help U.S. profit picture

(Repeats Friday story with no changes)

By Caroline Valetkevitch and Sinead Carew

NEW YORK Feb 3 Stock investors could have at
least one less worry in the next earnings period: the suddenly
limp U.S. dollar.

The greenback, whose strong rally after the Nov. 8 U.S.
election hit profits at many U.S. multinationals in the fourth
quarter, has had a sharp reversal since the start of the year.

Coupled with comments suggesting that the Trump
administration favors a weaker currency, that could shift the
picture for the current quarter.

Fourth-quarter results, even with the dollar’s drag, are
mostly beating Wall Street’s expectations and helping provide a
buffer to some of the uncertainties facing investors, including
the new U.S. president’s policies. The S&P 500 ended with
a slight gain for the week.

With earnings in from more than half the S&P 500 companies,
year-over-year profit growth for the fourth quarter is now
estimated at 8.0 percent, up from 6.1 percent forecast at the
start of January, and on track to be the strongest since the
third quarter of 2014, according to Thomson Reuters data.
Analysts expect first-quarter earnings to rise 11.5 percent.

That “sets the stage for a stronger Q1, particularly when
you look at the jobs numbers coming out and when you look at the
business confidence surveys and consumer confidence surveys.
There’s a lot of improving sentiment,” said Brad McMillan, chief
investment officer for Commonwealth Financial in Waltham,
Massachusetts.

U.S. nonfarm payrolls had the largest increase in four
months in January.

“Even as the companies are talking their expectations down,
consumers and businesses are likely to act on that better
sentiment.”

The dollar index on Jan. 31 posted its worst start to
a year in three decades, putting in a decline of 2.6 percent for
January after gaining 7.1 percent in the last quarter of 2016.

Comments this week by President Donald Trump and a top
economics adviser suggested to some that the administration is
prepared to jettison two decades of “strong dollar” policies
advocated by predecessors.

A strong dollar is a worry for equity investors because it
makes U.S. multinationals’ foreign currency earnings worth less
in dollars. Nearly half of S&P 500 sales come from overseas,
according to S&P-Dow Jones Indices.

Executives from a slew of U.S. companies cited the strong
dollar as a negative in their fourth-quarter reports and also
concern about its effect on 2017 results.

Among them, Apple gave a cautious outlook for the
current quarter that it mainly attributed to the strong dollar,
despite its upbeat fourth-quarter results.

“For a company like ours where we do about two-thirds of our
business outside the United States, the strong dollar presents a
headwind of more than 2 percent growth,” Apple Chief Financial
Officer Luca Maestri told Reuters.

Other companies citing currency hurdles for the last quarter
or for 2017 included Procter & Gamble, Mead Johnson
Nutrition, 3M Co and PPG Industries.

Procter & Gamble said it expects combined headwinds of
foreign exchange and minor brand divestitures to cut sales
growth by two to three percentage points for fiscal 2017.

Some strategists say the dollar is still likely to be
stronger rather than weaker this year, especially given
expectations for interest rate hikes for this year, but that
earnings should still benefit from an improving economy.

“You should get more than enough growth from the economy if
you’re a corporation to more than offset the rise in the
dollar,” said Sameer Samana, global quantitative strategist for
Wells Fargo Investment Institute, which expects the dollar index
to rise 7 percent by year end.

(Reporting by Caroline Valetkevitch and Sinead Carew in New
York; Additional reporting by Stephen Nellis in San Francisco;
Editing by James Dalgleish)

Source: Reuters

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