By: Alex Olshanskiy

Currency can impact expenses and revenues. Many quarterly updates by companies in 2022 consisted of negative results due to a strong dollar. This was especially the case with technology companies that are included in the S&P 500 Information Technology Index, which generate a majority of its revenue (57.8%) outside of the United States. If you were lucky enough to travel overseas in 2022, you may have experienced the benefits of a stronger dollar since purchasing power for U.S. citizens increased on international products and services.

The S&P 500 technology sector was down (28.92%) on a total return basis in 2022. This was roughly 50% more than the S&P 500, which was down over 18% for the year. This past year brought many fears to investors, as Russia went to war with Ukraine, inflation hit a 40-year high, supply chain issues arose and we experienced one of the fastest Fed rate-tightening cycles in history. The euro broke through parity with the dollar in 2022, the British pound hit one of its lowest points in trading against the dollar in over 200 years and the Japanese yen fell to its weakest point since 1990. The dollar’s strength in 2022 brought extra headwinds to the market, especially to U.S. technology companies with high exposures to revenues overseas.

International countries and emerging markets are experiencing headwinds with higher inflation and increasing rates. Not only are the interest rates rising in international countries in an attempt to tame inflation, but the dollar strengthening creates another problem. The dollar’s strength further gyrates the international markets with inflation, and most international trade is dollar-denominated.

The dollar index peaked on September 27, 2022 and has been down roughly 5% since then. A surprise catalyst and tailwind that could potentially be underway for technology stocks is the prospect of a weakening dollar. This could potentially give rise to better margins, and international companies could again find it more attractive to purchase products and services from the U.S.

Tufton continues to track factors such as inflation, geopolitical tensions and growth, but we especially focus on monitoring the fundamentals of the companies that we hold for our clients. Many of these factors that impacted stocks in 2022 are macro and not micro (within the company), and we urge you not to become concerned by sizable declines nor too excited by sizable advances.