Investors look to global growth for earnings power

Sun Apr 9, 2017 7:23pm EDT
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By Caroline Valetkevitch

NEW YORK (Reuters) - America First may be a main policy of the White House and fuel to the stock market rally but U.S. investors are looking overseas for stronger earnings as S&P 500 companies are set to report their first quarter of double-digit profit gains since 2014.

A strong earnings season would help justify pricey stock valuations, with the S&P 500 rallying this month to its most expensive since 2004 on a forward price-to-earnings basis.

While the U.S. economy has gotten a lot of attention since the Nov. 8 election and President Donald Trump's vows to boost the domestic economy, data during the quarter has suggested the global economy is strengthening.

That is welcome news for S&P components, since nearly half of their sales come from overseas.

Shares of the biggest U.S. companies, which tend to have the most overseas exposure, have been among the strongest performers over the past several weeks. For instance, the S&P 500 .SPX has outperformed its average stock .SPXEW this year since mid-February, after performing mostly in line at the beginning of the year. []

"The fact that we're seeing stabilization in the global community will bode well for multinational companies and help earnings for the first quarter," said Terry Sandven, senior equity strategist at U.S. Bank Wealth Management in Minneapolis.

"You've also seen the dollar not appreciate as much as many had forecast a quarter ago, so multinational companies may get some relief on the (foreign exchange) line," he said.

A weaker dollar boosts offshore revenues when they are translated into the U.S. currency. The U.S. dollar index .DXY was down 1.8 percent in the first quarter, but it was still cheaper during last year's first quarter.   Continued...

A trader works on the floor of the New York Stock Exchange (NYSE) before the opening bell in the Manhattan borough of New York, U.S. April 4, 2017.   REUTERS/Brendan McDermid