The dramatic increase in the value of the United States dollar and the decline in oil prices is expected to greatly affect profits in corporate America.
Analysts are expecting to see a “recession” in profits when the results are revealed from this earnings period this week. According to S&P Capital IQ, earnings in the fourth quarter from S&P 500 companies are expected to shrink by 5%.
In addition, as the Federal Reserve raised interest rates last month for the first time in almost 10 years, investors can no longer look to the Fed as a means of stimulus in the economy. Corporate profits are the traditional drivers of prices in the stock market.
The strong U.S. dollar, the value of which has risen almost 20% against that of many currencies and is now almost equal to that of the Euro, also affects multinational companies in the country as products sold overseas become more expensive. The way companies handle the pressure for wage hikes will also determine corporate profits. However, those that are looking into printing franchise opportunities and other business franchise opportunities that are domestically based may do very well in the United States.
Analysts are predicting that profits will increase this year. They expect earnings to grow 1% in the first quarter of 2016, 4% in the second, and 9% in the third. The Chief Investment Officer of Atlantic Trust Private Wealth Management, David Donabedian, says that although this trajectory is rather low, it will be enough to ensure a continuation in the bull market.