Nasdaq Stocks Get a Boost from the Falling Dollar

As tech companies head into a key week for corporate earnings, one headwind from last year has eased in recent months: the dollar.While tech investors have plenty of issues to worry about, the weaker dollar has been a relief for many companies. Last year, a strong dollar put pressure on earnings for many multinational firms. But in recent months, the dollar has weakened, providing some relief for companies that do business overseas.
‍

The dollar has weakened by about 11% against a basket of major currencies from a two-decade peak reached in September, touching its lowest since April. This trend will bolster earnings at companies that derive a greater percentage of their revenue from outside the US, as a weaker greenback means foreign revenue translates into more dollars.
‍

Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, said that currency translations were a big headwind last year, but that this fulcrum in the dollar will support earnings and growth. He added that as companies look out over the year, they can start to see benefits from where the currency is headed.
‍

The dollar index had its biggest gain last year since 2015, a byproduct of the Federal Reserve pushing up interest rates in order to combat inflation. The reversal reflects optimism that the central bank could be near a dovish pivot; the yield on the 10-year Treasury, a key factor behind tech valuations, has similarly receded from a recent peak.
‍

The Nasdaq 100 Index, which is heavily weighted towards technology stocks, has risen 7.9% since the dollar index peaked in September. This is the fourth straight week of gains for the Nasdaq 100, which is off to a strong start in 2023.
‍

The weaker dollar has been a theme this earnings season, with IBM Chief Financial Officer James Kavanaugh telling Bloomberg News that the currency will stop weighing on growth this year. This was echoed by ServiceNow Inc., which said currency fluctuations probably won’t weigh on annual earnings in aggregate this year.
‍

UBS Group AG expects that Apple Inc. will report some iPhone softness when it releases its earnings, but that this will be offset by foreign exchange trends. According to data from Bloomberg, less than half of Apple's 2022 revenue came from the Americas.
‍

According to research firm Bernstein, the weakening dollar will boost revenue for the stocks it covers by 1.7% to 4.2% this year. This trend is not reflected in consensus estimates, but it will act as a cushion when companies report.
‍

The dollar index is up 14% from its 2021 low, which is weighing on some companies. Microsoft Corp. said that, based on current exchange rates, sales growth this quarter will be 3 percentage points lower than it otherwise would have been.
‍

Despite some high-profile disappointments from Microsoft, Intel Corp., and Texas Instruments Inc., many tech companies are still optimistic about future quarters thanks to the strong dollar. However, investors are still closely watching Federal Reserve policy, especially ahead of the central bank's policy decision on Wednesday.
‍

"The thing that's really on everyone's mind right now is demand," said Michael O'Keeffe, chief investment officer at Stifel Nicolaus & Co. "We're still waiting for the Fed's lagging effect on demand to kick in. Should something cause the Fed to surprise us, we could quickly see a reversal in the dollar."
‍

The Nasdaq 100 is off to a strong start in 2023, with the tech-heavy index coming off its fourth straight positive week. The index gained 4.7% last week, its biggest weekly gain since November. This four-week stretch is its longest such streak since August, and the index is up 11% so far in January. This sets it up for its biggest monthly gain since July.