Be careful! There is another negative factor in the US stock market.

Analysts have sounded the alarm over the sharp rise in the US dollar, which could pose another headwind as US stocks struggle through a difficult September.

"Since early August, the US dollar has climbed above the average level of the second quarter. This means that as investors wrap up trading for the third quarter this week, the dollar has shifted from a favorable factor to an unfavorable one for companies," said Andrew Greenebaum of Jefferies in a report.

Why is a strong dollar a negative?

A rapid strengthening of the US dollar is typically seen as a problem for large US multinational companies. A stronger dollar makes their goods more expensive for overseas buyers, and the value of overseas revenue reflected on their income statements also decreases.

Due to the Federal Reserve's aggressive interest rate hikes, US bond yields have surged, propelling the dollar higher throughout 2022. The US Dollar Index (DXY) reached a 20-year high in September last year but subsequently experienced a significant decline.

The US Dollar Index dropped from its peak near 115 points in the fall of last year to below 100 points in July, which was seen as a positive factor for US stocks. The S&P 500 hit bottom in October last year and continued to rise throughout the winter and spring.

However, since late July this year, US stocks have experienced a correction, with major indices falling about 5.5% from their high on July 31, 2023.

"The US dollar has been beneficial for US stocks so far this year. But about 10 weeks ago, everything changed."

He pointed out that "in such a short period of time, the US Dollar Index has risen by about 4%, exceeding one standard deviation above normal levels. Such fluctuations often have an impact on company fundamentals and asset allocation."

The chart above shows the average performance of major indices, including the S&P 500, S&P 500 Cyclical Index, Russell 2000 Index (RTY), Nasdaq 100 Index, and Morgan Stanley Capital International (MSCI) All Country World ex-US Index.

Increasing pressure on US stocks

During a period of a strong US dollar, small-cap stocks typically perform well as most of their revenue comes from the domestic market. Cyclical stocks are expected to be affected.

Morgan Stanley analysts stated that "the appreciation of the US dollar will also tighten financial conditions, adding further headwinds to the stock market as we enter the fourth quarter."

They wrote, "With 10-year real interest rates reaching a 16-year high above 2.0%, the dollar is surging, posing significant headwinds for US multinational companies."

"Oil has also become a constraining factor, with WTI crude rising more than 30% from its spring low. Combined with signs that bank lending and credit supply have been contracting, these factors suggest that the liquidity backdrop may deteriorate." Good morning everyone,

I am here to present the latest Earnings Report from Dolphin Research.

In this report, we will analyze the financial performance of Dolphin Research for the current quarter.

Firstly, let's take a look at the revenue figures. The company's revenue for this quarter reached a record high of $X million, representing a significant increase of X% compared to the previous quarter. This growth can be attributed to the successful launch of our new product line and the expansion of our customer base.

Moving on to the profitability indicators, Dolphin Research achieved a gross profit margin of X%, which is a X% improvement compared to the same period last year. This improvement can be attributed to our continuous efforts in cost optimization and operational efficiency.

In terms of operating expenses, we have successfully reduced our expenses by X% compared to the previous quarter. This was achieved through careful budgeting and cost control measures.

Furthermore, our net profit for the quarter increased by X% compared to the same period last year, reaching $X million. This growth can be attributed to the increase in revenue and the improvement in gross profit margin.

Looking ahead, we remain optimistic about the future prospects of Dolphin Research. We will continue to focus on innovation, customer satisfaction, and operational excellence to drive sustainable growth.

Thank you for your attention. If you have any questions, please feel free to ask.