The stronger USD, which is now hovering near its highest since September 2003, is expected to diminish profits for large companies that do business overseas, and some strategists contend that the strengthening currency and low energy prices could constrain quarterly S&P 500 earnings growth. [Strong U.S. Dollar Could Pressure S&P 500 Earnings, ETFs]
Specifically, the strong greenback makes American goods and services more expensive overseas. [Tech ETFs with Global Footprints at Risk]
Microsoft (NasdaqGS: MSFT) also revealed that overseas sales are being pressured by the stronger dollar.
“The one sector that is arguably the most exposed to the rising dollar is technology as the sector is by far the best represented among the group of shares with the least North American sales exposure,” Simon Colvin, an analyst at Markit, said in a report.
Alternatively, investors can turn to mid- and small-cap stocks, which focus more on the domestic economy, to capture the continued growth in the U.S. market.
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Max Chen contributed to this article. Tom Lydon’s clients own shares of IWM.