Party Time! Weak Dollar Unleashes Record Stock Run

A pickup in global growth and a weakening dollar are boosting profits at many U.S. exporters, helping support the yearslong rally in the stock market and tipping major indexes to new records.

Boeing Co. led the Dow Jones Industrial Average to a new high on Wednesday, rising almost 10% after beating analyst expectations and giving investors confidence that rising global airline traffic will lead airlines to follow through on the jet orders they have placed.

Boeing joined Facebook Inc. and Hershey Co. in reporting strong earnings Wednesday. The S&P 500 rose 0.70 point, or less than 0.1%, to 2477.83.

The reports picked up on a theme recurring during the second-quarter earnings season: Companies are benefiting from growing demand for goods and services by foreign buyers as well expectations for faster global growth with continued low inflation.

The belief in corporate earnings has helped propel markets to new highs for the past year. Recent earnings periods have helped solidify that view.

Earnings from America's largest companies have in large part helped keep the market rally going in the face of political uncertainty at home and abroad.

Profits at companies in the S&P 500 rose 14% in the first three months of the year, and second-quarter earnings are projected to have climbed 8.2% versus the prior-year period, according to FactSet.

"Earnings in general have been very good," said Paul Brigandi, managing director and head of trading at Direxion Investments, an exchange-traded fund provider. "That's fueled the continued optimism in the market."

The declining dollar is also helping drive earnings higher. U.S. exports become cheaper to foreign buyers when the dollar's value falls.

The U.S. currency slid again Wednesday after the Federal Reserve left its benchmark interest rate unchanged. Many analysts don't expect the Fed to raise rates again until December, and a slowdown in inflation could keep the dollar under pressure.

With the Fed's commentary suggesting the central bank will keep rates low for the time being, investors say U.S. stocks should keep eking out gains, provided that corporate earnings continue to be supportive.

The Dow Industrials rose 97.58 points, or 0.5%, to 21711.01 on Wednesday., setting another new high.

Coca-Cola Co. Chief Financial Officer Kathy Waller cited the "slightly better currency environment" as a reason the company was raising its earnings forecast for the full year, saying Wednesday it expects adjusted earnings per share to be flat to down 2%, compared with guidance of a 1% to 3% decline from the year prior. It shares climbed 1.1% to $45.74.

"Clearly a weaker dollar is helpful there," Fredrik Eliasson, the sales and marketing chief at railroad company CSX Corp., said on an earnings call last week, referring to the company's coal-exports business. The company transports U.S. exporters' freight. "And I think as we look at some of the other markets, we will see some of those benefits. I don't think we've seen a lot of it yet, but anytime we have a little bit of weaker dollar, it does help them."

The ICE Dollar index, which measures the currency against six peers, is down about 8.6% this year at its lowest level in 13 months. The euro, which is heavily weighted in the index, has been a standout performer, rising almost 12% against the dollar this year.

The dollar has tumbled in 2017 after a rally that followed the U.S. presidential election, when investors bet on faster growth and higher inflation under the Trump administration. Tepid data on inflation, auto and retail sales have pressured the U.S. currency recently, and investors and analysts have tempered expectations for President Donald Trump's policy agenda.

The Fed has penciled in one more rate increase this year, but some investors believe that plan will be thwarted by persistently weak inflation, which has continued to undershoot the central bank's annual target of 2%. The fed funds futures market, where traders bet on the future rate path, suggests a 49% probability of at least one more increase before the end of the year, according to data from CME Group.

A weaker dollar, if it lasts, could further fuel earnings gains in the coming quarters. If the ICE Dollar Index ends 2017 about where it is now, the drop for the year would lift per-share earnings in the S&P 500 by roughly 4% in 2018, according to Morgan Stanley, which estimates that profits increase 1% for every 2% fall in the dollar.

Some experts say the dollar is poised to fall further, particularly if Mr. Trump, facing resistance to his economic agenda, attempts to use the currency as a tool to help the economy grow faster. He could do so by, "jawboning the dollar further down and instituting policies that are more dollar depreciative in nature," said Adrian Helfert, head of global fixed income at Amundi Smith Breeden.

Mr. Trump praised Fed Chairwoman Janet Yellen for keeping the dollar "not too strong," in an interview with The Wall Street Journal Tuesday.

There are risks for companies banking on a lift from currency movements. If the Trump administration chooses to pursue protectionist trade policies that provoke tit-for-tat tariffs, it could undermine the advantages of a weaker dollar by adding other costs for exporters. Mr. Trump, for example, is considering whether to block steel imports, telling the Journal Tuesday that he would take his time to make a decision.

Many firms hedge their currency exposure to reduce its impact on earnings. Toy company Hasbro Inc., for example, hedges nearly three quarters of its costs, Chief Financial Officer Deborah Thomas said on an earnings call Monday.

"To the extent we haven't hedged, we should get some benefit from it. But on a full year basis, again, we really hedge to protect the pricing that we offered to our retailers," she said.

Some said a stronger global economy was helping results. M. Keith Waddell, chief financial officer at staffing agency Robert Half International Inc., cited a strong operating environment outside the U.S., particularly in Europe, on an earnings call Tuesday afternoon. The stronger euro, he said, was simply "even more icing."

--Amrith Ramkumar contributed to this article.

(END) Dow Jones Newswires

July 27, 2017 08:14 ET (12:14 GMT)