The impact of falling oil prices and the stronger dollar have been among the dominant corporate stories of early 2015.
The former was supposed to be bad news for the energy companies and the latter was supposed to be bad news for companies with a lot of overseas business.
While much of that has indeed been the case, it doesn't really capture the whole story, including the fact that many companies are benefiting from lower energy costs and cheaper imports.
FactSet has been listening to all of the earnings calls during the current earnings season, and they've published a couple of interesting macro quotes in their Earnings Insight report. One particular quote from Linear Technology pretty much summed up the feeling of every company out there.
“The following factors impact our guidance. On the macroeconomic front, the world's two largest economies, the USA and China, although continuing to grow, appear to be doing so at a somewhat slower rate. Europe has had its problems, although they appear not to be worsening. The dollar is strong, which has pluses and minuses. Similarly, oil prices are low, which also has positive and negative economic effects.” –Linear Technology (Apr. 15, 2015)
The comments about the US, Europe, and China are consistent with what we've all seen in the economic data.
The comments about the dollar and oil more or less answer two questions we often hear: "Is the strong dollar bad for stocks?" and, "Is crashing oil bad for stocks?"
Unfortunately for people asking those questions, the answers are not very straightforward. A strong dollar is good for companies that have to buy goods from foreign vendors, but it's bad for companies with a lot of business overseas hoping to bring that money back into the US. Crashing oil is great for companies who use a lot of energy in their operations, but it's bad for the companies that sell oil or supply those oil sellers.
One thing we do know, however, is that estimations for the impacts of these forces were way too negative going into earnings season. In fact, the beleaguered energy companies have been delivering the biggest upside surprises of any industry by far.
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