For the first time since the equity rally began in March, the biggest U.S. stocks are beating the smallest as the dollar’s descent sends investors to companies with the most business in international markets.
The Dow Jones Industrial Average of companies with $116.6 billion in median market value rose 7.9 percent this quarter, compared with the 0.2 percent loss by the Standard & Poor’s SmallCap 600 Index, whose members are worth $591.8 million on average. The Dow had trailed by 26 percentage points following the stock market’s low on March 9.
The largest corporations are winning now because they get more sales abroad, where growth in nations from Brazil to China exceeds the pace in the world’s biggest economy. The dollar’s drop helps Peoria, Illinois-based Caterpillar Inc., Ford Motor Co. and McDonald’s Corp. by boosting the value of revenue when foreign earnings are brought back to the U.S.
“The large-cap multinational exposure to a weak dollar and non-dollar revenues has been causing them to outperform,” said Chris Hyzy, New York-based chief investment officer at U.S. Trust, a Bank of America Corp. unit overseeing about $188 billion. “That’s going to be stickier than many people believe. It’s not going to go away in the new year.”
Large Stock Shift
While the dollar has fallen since March, the 30-company Dow average didn’t start beating the rest of the stock market until this quarter. Now, investors are buying bigger stocks on concern the rally in equities will slow, said Henry Herrmann, the chief executive officer of Waddell & Reed Financial Inc., which manages $70 billion from Overland Park, Kansas. The S&P 500 posted its first monthly drop since February in October after a 56 percent jump and declined 0.2 percent last week to close at 1,091.38 on Nov. 20.
The Dow added 162.86 points, or 1.6 percent, to 10,481.02 at 10:51 a.m. in New York today. The S&P SmallCap 600 climbed 2.5 percent to 316.68.
The largest companies generate about 33 percent of their sales abroad, compared with 20 percent for the smallest, according to data compiled by Charlotte, North Carolina-based Bank of America.
Smaller companies are at a disadvantage because the dollar has declined against all 16 of the most-active currencies this year as the government sold record levels of new debt to support the $11.6 trillion that it spent, lent or guaranteed to end the worst recession since the 1930s. The Dollar Index has lost 16 percent from its three-year high on March 5, the steepest retreat since 1986.
‘Quietly Very Pleased’
President Barack Obama “has to be quietly very pleased about it,” said Kenneth Rogoff, a professor at Harvard University in Cambridge, Massachusetts, and former chief economist at the International Monetary Fund. “The dollar’s decline benefits big multinationals that happen to be getting a lot of their profits from abroad. That’s clear.”
Caterpillar, the biggest maker of bulldozers and excavators that got 66 percent of sales outside the U.S. in 2008, has added 16 percent this quarter on the New York Stock Exchange. Tokyo- based Komatsu Ltd., its top competitor, added 2.4 percent since Sept. 30.
Ford, the only major U.S. automaker to avoid bankruptcy, has risen 22 percent in the fourth quarter, compared with a 10 percent decline for Seoul-based Hyundai Motor Co., South Korea’s largest car manufacturer. Dearborn, Michigan-based Ford does 51 percent of its business abroad. South Korea’s won is the second- best performer among Asia’s 10 most-active currencies this year.
66% of Sales
McDonald’s has gained 12 percent since Sept. 30, while Darden Restaurants Inc., the owner of Olive Garden and Red Lobster, declined 6.4 percent.
Converting currencies into dollars will add 10 cents to 13 cents a share to 2010 profit at McDonald’s, the world’s largest restaurant chain said on Nov. 12. The Oak Brook, Illinois-based company, whose market value is more than 15 times bigger than Darden’s, gets 66 percent of sales from overseas, versus 3.6 percent at its Orlando, Florida-based rival.
“People are trying to determine who has pricing power, where can we see revenue growth, where is there potential for market expansion, where is the emerging market international exposure,” Waddell & Reed’s Herrmann said. “Most of those questions lead to the conclusion of bigger cap and higher quality.”
Better Returns
The dollar’s drop is also helping broader measures for the biggest U.S. companies outperform indexes for the smallest. The S&P 100 has risen 5.8 percent this quarter, compared with a 4.9 percent gain for the S&P 500 and 1.1 percent rise with the S&P MidCap 400. The Russell 2000 Index has lost 1 percent. Their median market capitalizations are $40 billion, $8.55 billion, $2.17 billion and $375 million, respectively.
Among companies in the S&P 500, those generating more than half their revenue abroad beat those doing business solely in the U.S. by 30 percentage points in 2009 through Nov. 17, according to data compiled by Bespoke Investment Group LLC, a Harrison, New York-based research firm. The stock measure has risen 61 percent since March 9.
Weakness in the U.S. currency will continue next year even after the Federal Reserve boosts interest rates, a move Chairman Ben S. Bernanke says is an “extended period” of time away, according to the top forecasters in Bloomberg’s ranking of 46 firms last month. Standard Chartered Plc, Aletti Gestielle SGR, HSBC Holdings Plc and Scotia Capital Inc. say the dollar will depreciate as much as 7.1 percent versus the euro.
Central Banks
Odds of a Fed increase don’t exceed 50 percent until September, according to trading in Fed funds futures contracts. The central bank cut its target rate for overnight loans between banks to as low as zero, a record, in December.
“Over the next 12 months, and more likely over the next few years, the dollar should fall,” said David Kelly, who helps oversee $480 billion as chief market strategist for JPMorgan Funds in New York. “Large-cap companies do have more exposure to the rest of the world, so they should benefit.”
Record foreclosures, frozen credit markets and $1.72 billion in bank losses and writedowns from the collapse of the subprime-mortgage market prompted government rescue plans that have accelerated the dollar’s retreat.
Policy makers say they want to end the dollar’s plunge. European Central Bank President Jean-Claude Trichet has argued for a strong dollar, calling it “extremely important” last month. Bernanke said during a Nov. 16 speech in New York that the Fed is “attentive” to changes in the currency’s value and “will help ensure that the dollar is strong.”
Amassing Reserves
To keep their currencies from appreciating too fast, governments in developing nations have amassed record foreign- exchange reserves as their central banks bought dollars. Brazil imposed a tax on foreign investments in October to end a rally that’s driven the real up 34 percent against the dollar in 2009.
International sales haven’t guaranteed stock gains. Chicago-based Boeing Co., which gets 39 percent of revenue abroad, cut its full-year profit forecast on Oct. 21 following $3.5 billion in charges for the delayed 787 Dreamliner and 747-8 jumbo jet programs. Its shares lost 2.6 percent since Sept. 30.
Emerging markets remain a draw for corporations. The U.S. unemployment rate is 10.2 percent, the highest level since 1983, and Americans cut spending for the first time in five months in September, according to the Commerce Department.
U.S. GDP
The median of 63 economist estimates compiled by Bloomberg show that the U.S. may expand 2.6 percent in 2010, after increasing at a 3.5 percent rate in the third quarter of 2009 following a year of contraction. Brazil, Latin America’s biggest economy, will grow 3.8 percent in 2010 and China, the most- populous nation, will gain 9.5 percent, according to the median forecasts.
“Large companies are in the sweet spot,” said Michael Obuchowski, chief investment officer of First Empire Asset Management Inc. in Hauppauge, New York, which oversees about $3.3 billion. “When the consumer is still slowly recovering, being able to boost the exports really helps the manufacturing part of the economy, the exporting part of the economy.”
The Dow Jones Industrial Average of companies with $116.6 billion in median market value rose 7.9 percent this quarter, compared with the 0.2 percent loss by the Standard & Poor’s SmallCap 600 Index, whose members are worth $591.8 million on average. The Dow had trailed by 26 percentage points following the stock market’s low on March 9.
The largest corporations are winning now because they get more sales abroad, where growth in nations from Brazil to China exceeds the pace in the world’s biggest economy. The dollar’s drop helps Peoria, Illinois-based Caterpillar Inc., Ford Motor Co. and McDonald’s Corp. by boosting the value of revenue when foreign earnings are brought back to the U.S.
“The large-cap multinational exposure to a weak dollar and non-dollar revenues has been causing them to outperform,” said Chris Hyzy, New York-based chief investment officer at U.S. Trust, a Bank of America Corp. unit overseeing about $188 billion. “That’s going to be stickier than many people believe. It’s not going to go away in the new year.”
Large Stock Shift
While the dollar has fallen since March, the 30-company Dow average didn’t start beating the rest of the stock market until this quarter. Now, investors are buying bigger stocks on concern the rally in equities will slow, said Henry Herrmann, the chief executive officer of Waddell & Reed Financial Inc., which manages $70 billion from Overland Park, Kansas. The S&P 500 posted its first monthly drop since February in October after a 56 percent jump and declined 0.2 percent last week to close at 1,091.38 on Nov. 20.
The Dow added 162.86 points, or 1.6 percent, to 10,481.02 at 10:51 a.m. in New York today. The S&P SmallCap 600 climbed 2.5 percent to 316.68.
The largest companies generate about 33 percent of their sales abroad, compared with 20 percent for the smallest, according to data compiled by Charlotte, North Carolina-based Bank of America.
Smaller companies are at a disadvantage because the dollar has declined against all 16 of the most-active currencies this year as the government sold record levels of new debt to support the $11.6 trillion that it spent, lent or guaranteed to end the worst recession since the 1930s. The Dollar Index has lost 16 percent from its three-year high on March 5, the steepest retreat since 1986.
‘Quietly Very Pleased’
President Barack Obama “has to be quietly very pleased about it,” said Kenneth Rogoff, a professor at Harvard University in Cambridge, Massachusetts, and former chief economist at the International Monetary Fund. “The dollar’s decline benefits big multinationals that happen to be getting a lot of their profits from abroad. That’s clear.”
Caterpillar, the biggest maker of bulldozers and excavators that got 66 percent of sales outside the U.S. in 2008, has added 16 percent this quarter on the New York Stock Exchange. Tokyo- based Komatsu Ltd., its top competitor, added 2.4 percent since Sept. 30.
Ford, the only major U.S. automaker to avoid bankruptcy, has risen 22 percent in the fourth quarter, compared with a 10 percent decline for Seoul-based Hyundai Motor Co., South Korea’s largest car manufacturer. Dearborn, Michigan-based Ford does 51 percent of its business abroad. South Korea’s won is the second- best performer among Asia’s 10 most-active currencies this year.
66% of Sales
McDonald’s has gained 12 percent since Sept. 30, while Darden Restaurants Inc., the owner of Olive Garden and Red Lobster, declined 6.4 percent.
Converting currencies into dollars will add 10 cents to 13 cents a share to 2010 profit at McDonald’s, the world’s largest restaurant chain said on Nov. 12. The Oak Brook, Illinois-based company, whose market value is more than 15 times bigger than Darden’s, gets 66 percent of sales from overseas, versus 3.6 percent at its Orlando, Florida-based rival.
“People are trying to determine who has pricing power, where can we see revenue growth, where is there potential for market expansion, where is the emerging market international exposure,” Waddell & Reed’s Herrmann said. “Most of those questions lead to the conclusion of bigger cap and higher quality.”
Better Returns
The dollar’s drop is also helping broader measures for the biggest U.S. companies outperform indexes for the smallest. The S&P 100 has risen 5.8 percent this quarter, compared with a 4.9 percent gain for the S&P 500 and 1.1 percent rise with the S&P MidCap 400. The Russell 2000 Index has lost 1 percent. Their median market capitalizations are $40 billion, $8.55 billion, $2.17 billion and $375 million, respectively.
Among companies in the S&P 500, those generating more than half their revenue abroad beat those doing business solely in the U.S. by 30 percentage points in 2009 through Nov. 17, according to data compiled by Bespoke Investment Group LLC, a Harrison, New York-based research firm. The stock measure has risen 61 percent since March 9.
Weakness in the U.S. currency will continue next year even after the Federal Reserve boosts interest rates, a move Chairman Ben S. Bernanke says is an “extended period” of time away, according to the top forecasters in Bloomberg’s ranking of 46 firms last month. Standard Chartered Plc, Aletti Gestielle SGR, HSBC Holdings Plc and Scotia Capital Inc. say the dollar will depreciate as much as 7.1 percent versus the euro.
Central Banks
Odds of a Fed increase don’t exceed 50 percent until September, according to trading in Fed funds futures contracts. The central bank cut its target rate for overnight loans between banks to as low as zero, a record, in December.
“Over the next 12 months, and more likely over the next few years, the dollar should fall,” said David Kelly, who helps oversee $480 billion as chief market strategist for JPMorgan Funds in New York. “Large-cap companies do have more exposure to the rest of the world, so they should benefit.”
Record foreclosures, frozen credit markets and $1.72 billion in bank losses and writedowns from the collapse of the subprime-mortgage market prompted government rescue plans that have accelerated the dollar’s retreat.
Policy makers say they want to end the dollar’s plunge. European Central Bank President Jean-Claude Trichet has argued for a strong dollar, calling it “extremely important” last month. Bernanke said during a Nov. 16 speech in New York that the Fed is “attentive” to changes in the currency’s value and “will help ensure that the dollar is strong.”
Amassing Reserves
To keep their currencies from appreciating too fast, governments in developing nations have amassed record foreign- exchange reserves as their central banks bought dollars. Brazil imposed a tax on foreign investments in October to end a rally that’s driven the real up 34 percent against the dollar in 2009.
International sales haven’t guaranteed stock gains. Chicago-based Boeing Co., which gets 39 percent of revenue abroad, cut its full-year profit forecast on Oct. 21 following $3.5 billion in charges for the delayed 787 Dreamliner and 747-8 jumbo jet programs. Its shares lost 2.6 percent since Sept. 30.
Emerging markets remain a draw for corporations. The U.S. unemployment rate is 10.2 percent, the highest level since 1983, and Americans cut spending for the first time in five months in September, according to the Commerce Department.
U.S. GDP
The median of 63 economist estimates compiled by Bloomberg show that the U.S. may expand 2.6 percent in 2010, after increasing at a 3.5 percent rate in the third quarter of 2009 following a year of contraction. Brazil, Latin America’s biggest economy, will grow 3.8 percent in 2010 and China, the most- populous nation, will gain 9.5 percent, according to the median forecasts.
“Large companies are in the sweet spot,” said Michael Obuchowski, chief investment officer of First Empire Asset Management Inc. in Hauppauge, New York, which oversees about $3.3 billion. “When the consumer is still slowly recovering, being able to boost the exports really helps the manufacturing part of the economy, the exporting part of the economy.”
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