The Big Tech stocks which are listed on prominent North American stock exchanges have been unusually volatile recently.
Large technology companies such as Microsoft, Apple and Google are often regarded by traders as steady, non-volatile investments which only move very slightly, hence their wide-ranging popularity among all kinds of traders and investors.
Recently, however, things have been somewhat different. There was a considerable collapse in the value of the stock of many big tech companies recently, which even as recently as May this year was being described by the mainstream media as ‘far from over’.
Such volatility is rare, however now there is another element which is important to consider; the strong US Dollar.
The US Dollar has been surprisingly strong against its rival major currencies recently, and this strength is looking likely to affect the performance of the stocks of American big tech firms with a global audience such as Apple, Meta (Facebook), Alphabet (Google), Netflix and Tesla as their largest percentage of sales and revenue is generated outside the United States.
Therefore, being US-headquartered companies, the strong dollar vs weaker currencies in the regions in which these companies conduct most of their business means that there is a potential impact on revenues looming.
Asian currencies have fallen much less than the euro, and hedging and shifting production can cut currency volatility. This may seem an extreme logistics and organizational exercise, but it is possible given the global footprint of these multinational giants and the need to hedge against the currency market’s considerable movements between US Dollar and other currencies lately.
To demonstrate how this actually works, it is worth looking at the 11% increase this year against a basket of currencies that the US Dollar has achieved, and especially the 12% it has gained against the euro.
This could potentially create a major issue as earnings season begins. For example, many companies included in the S&P500 index generate 29% of their sales from outside the United States according to Goldman Sachs.
These companies often sell those products or services in local currencies, then report financial results including those sales in dollars. Therefore, if Nike sells a pair of shoes for 100 euros, it was worth about $7 less at the end of its quarter than at the beginning of the same quarter.
Given the economic woes that exist in the United States such as spiraling inflation which is at its highest point in 40 years, and a cost of living crisis, it may be difficult to understand why the US Dollar is rising against other majors such as the Euro and British Pound, both of which are legal tender in regions that face the exact same economic woes as the United States. Mainland Europe and Britain are both mired in high inflation and cost of living crises, but the Dollar is trumping the Euro and Pound.
One possible explanation for this could be that the dollar has risen for the reason it often does during global economic weakness, in that it is viewed as the world’s reserve currency, and therefore a safe haven.
Perhaps Bitcoin had been viewed that way as it is decentralized and away from the politicians and central banks, but the US Dollar is even performing well against Bitcoin and has been for a number of weeks now.
This matter in which the US Dollar’s strength may impact corporate earnings is interesting, therefore the big publicly listed stocks are equally interesting to watch as the earnings reports are released.
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