Dollar Strength and US Multinationals: When FX Helps the Index but Hurts EPS
For a US exporter, a chart of the dollar index can look like a profit‑and‑loss statement in disguise. A soaring greenback squeezes overseas revenues, while a sliding one flatters EPS — and in 2025–26, multinationals have seen both sides of that coin in quick succession.
Reuters reported in mid‑2025 that a sharp decline in the US dollar — nearly 10% on the dollar index, with the steepest back‑to‑back quarterly fall in over 30 years — was set to “boost U.S. multinationals’ earnings” after several years of currency headwinds. Macro Hive’s research, cited in the same piece, estimates that every 10% drop in the dollar tends to add about 2% to S&P 500 profits, mainly through translation gains when foreign‑currency revenues are converted back into dollars. S&P 500 companies derive roughly 41% of their revenues from outside the US, with technology at 55% foreign exposure, materials at 52% and communications at 49%. For those sectors, FX moves are not background noise — they are a recurring line item in earnings calls.
The mechanics cut both ways:
Translation effects: When the dollar weakens, a euro or yen of revenue converts into more dollars, automatically lifting reported sales and EPS even if local‑currency performance is unchanged. When the dollar strengthens, the reverse happens.
Transaction effects: A strong dollar can hurt exporters whose costs are in dollars and revenues in weaker currencies, but it can help importers and US consumers by making foreign goods cheaper, dampening domestic inflation.
For the stock market as a whole, the impact can be paradoxical. A period of dollar weakness may support index‑level earnings, especially in globally exposed sectors, but the dollar often softens when markets are worried about US growth or when the Fed is expected to cut rates more aggressively. In that scenario, FX tailwinds can show up in EPS just as investors are marking down valuation multiples for macro reasons. Conversely, a strong dollar driven by relatively tight Fed policy can weigh on earnings for multinationals even as it signals confidence in US growth and pulls capital into US assets, supporting index levels.
Company‑level examples illustrate how quickly these swings are reflected in forecasts. Analysts cited by Reuters in 2025 raised Netflix’s expected Q2 revenue growth from 16.4% to 17.2% largely due to a weaker dollar, and similar upward revisions appeared across parts of tech and communications. But those currency boosts can be overshadowed if tariffs rise or global demand weakens – a point Macro Hive and others have stressed when cautioning against over‑weighting FX in equity calls.
For investors, the takeaway in 2026 is that dollar moves are a real but second-order driver of S&P 500 earnings, especially in tech, materials and communications. A weaker dollar can mechanically lift index‑level profits by 1–2 percentage points; a stronger one can do the opposite. Whether that translates into higher or lower stock prices depends on why the currency is moving and how it interacts with interest rates, growth expectations and sector positioning.