Weak Dollar May Mitigate Tariff Impacts on S&P 500 Earnings Growth

Recent analyses suggest that a declining dollar may provide unexpected support for S&P 500 earnings, despite ongoing tariff disputes that are concerning many companies regarding their profit margins. As conversations around tariffs intensify, market participants are closely monitoring their impact on trade and earnings. Currently, the trade-weighted dollar has decreased by approximately 7% this year, with analysts from Goldman Sachs predicting an additional 4% decline by the end of the year. This fluctuation is significant because nearly one-third of S&P 500 revenues originate from international markets. Historical data indicates that a 10% devaluation of the dollar can lead to roughly a 23% increase in earnings per share, assuming all other factors remain constant. This trend is especially pronounced in the technology sector, where nearly 50% of the Nasdaq 100 revenue comes from foreign sales. Conversely, forecasts by Goldman Sachs indicate a robust U.S. economy, which is expected to surpass many global rivals in 2025 and 2026, potentially benefitting domestic companies. However, rising tariffs—projected to reach an effective rate of 19% by early 2027—continue to present challenges for businesses heavily reliant on international transactions. In this climate, where supply chain integrity is a priority, adjusting for currency fluctuations has become an important strategy for navigating profit variability. While a weaker dollar won't completely mitigate the difficulties presented by tariffs, it may help alleviate some of the financial strain. As second-quarter earnings reports begin to surface, Goldman Sachs maintains an optimistic outlook, asserting that the S&P 500 could rise an additional 10% over the coming year, buoyed by the effects of a softer dollar. This article first appeared on GuruFocus.