S&P 500 With Higher Global Exposure
The strong dollar is one of the biggest stories in the global financial markets right now. At 97.47, the US dollar index is up over 19% from a year ago. While this is good news for importers, it’s bad news for exporters. It’s also rough on the US-based multinational companies that do a lot of business overseas. This is a big deal for the S&P 500.
According to data compiled by S&P Dow Jones Indices, S&P 500 companies generated 52.2% of their revenue in the U.S. in 2014. That’s down from 53.7% in 2013 and 53.4% in 2012. Sales of U.S. goods and services to foreign countries have a significant spillover effect in the U.S. equity markets. Growth overseas parlays into growth for U.S. multinational corporations, and news of slower growth has the opposite effect. A sizable portion of foreign sales are conducted in foreign currencies providing U.S.-only investors with exposure to currency diversification.
Investors might be more exposed to global markets than they think. Alternatively, investors can take a look at smaller U.S. companies that focus on the domestic market, so currency risks may be limited.