The surge of the U.S. dollar is putting a strain on profit expectations for multinational American companies like Amazon.com and Apple. Investors are questioning how long the stock rally, which has been supported largely by strong profit growth of technology companies for the past two years, can withstand the pressure of the robust dollar.

The rise of the U.S. dollar is posing challenges for profit expectations among multinational American companies from Amazon.com to Apple. Investors are analyzing how long the stock rally, driven by significant increases in profits of technology companies, can endure the pressure of this strong dollar. The dollar has neared its highest level since November 2022. This situation presents a significant threat to large technology stocks, especially those like Amazon and Apple, that have been pushing the S&P 500 Index to new heights in recent years. While the dollar has slightly eased in the short term due to the deferment of tariff impositions on Canada and Mexico, there is a persistent demand for protection against a potential further increase in the dollar, maintaining a high level over the last two years. President Donald Trump’s economic policies play a crucial role in this rise. Unexpected dollar rallies often cause the most damage to company balance sheets.

Howard Du, a currency strategist at Bank of America, states, “Unexpected dollar rallies usually pose the most significant threat to company balance sheets.” According to Goldman Sachs data, the issue of “foreign exchange rates” (FX) comes up in about 40% of profit announcements made by S&P 500 companies. Apple anticipates that this currency trend will continue in the future. While Amazon’s most recent financial results were mostly positive, the lower-than-expected forecast for the first quarter has raised concerns among investors. One of the significant reasons behind this concern is the pressure created by foreign exchange rates. A robust dollar diminishes both export demand and the value of foreign earnings. Even without tariff impositions, a stronger dollar could harm these companies.

Patrick Fruzzetti, a portfolio manager at Rose Advisors, says, “Even without tariff impositions, a stronger dollar could negatively impact these companies and adversely affect some business sectors.” During periods when the dollar appreciated by more than 25% in mid-2014 and rose by a similar degree between 2021-2022, S&P 500 companies experienced an earnings recession. The tariffs implemented by the Trump administration and the up to 10% increase in the dollar in early 2018 also suppressed profits, with the S&P 500 losing nearly 20% during that time. Paula Comings, the head of the currency sales division at U.S. Bancorp, mentions, “The general expectation is for the dollar to remain strong, possibly until 2025.” While stock investors sometimes overlook the adverse effects of a strong dollar on profits, they are monitoring the situation closely, especially when company valuations are nearing historical highs. An index tracking the technology giants known as the “Fabulous Five,” as labeled by Bloomberg, trades at a price-earnings ratio of 30 times the estimated earnings for the next 12 months, up from 20 by the end of 2022. For comparison, the S&P 500 average was around 22 during the same period. The U.S. applying a 10% tariff on all products from China could also pose challenges for these companies. Ryan Grabinski, director of investment strategy at Strategas, highlights that Tesla Inc., which derives over 20% of its revenue from China, could be one of the most affected companies, followed by Nvidia Corp. and Apple with around 16%. Meta Platforms Inc. only generates about 2.1% of its revenue from Canada, with the rest of the Fabulous Five having no significant revenue ties with Mexico. Grabinski notes, “Tariffs on China and potential retaliation are the primary concerns in terms of revenue.” Gina Martin Adams, the lead stock strategist at Bloomberg Intelligence, emphasizes the significant risk of tariffs. Multinational corporations have become more reliant on the U.S. market compared to when Trump initially imposed tariffs. Martin Adams asserts, “Multinational corporations will have to choose between returning to the U.S. or seeking other trade partners and sources of revenue. This presents a major dilemma.” Additionally, Martin Adams points out that post-pandemic, the dollar, stocks, and company earnings have been moving unusually in the same direction. If the dollar continues to strengthen, things could revert to the previous ‘normal,’ putting pressure on companies like Nvidia, Alphabet (Google), Amazon, Tesla, and Broadcom, which heavily depend on profit growth. These companies are more sensitive to dollar movements compared to the overall market. On the other hand, new tax cuts discussed in Washington are expected to halve the tax burden on S&P 500 companies compared to the tax package in 2017. Bloomberg Intelligence suggests that this development could further complicate reaching the expected earnings per share (EPS) increase that is anticipated to exceed 20% over the next 12 months.