The weaker the dollar, the better the earnings report of Mag 7
Goldman Sachs stated that for every 10% decline in the US dollar, it is expected to drive approximately 2-3% growth in S&P 500 earnings per share. Among them, the overseas revenue share of the Mag 7 averages nearly 50%, far exceeding the median level of the index, and is expected to benefit significantly from the weakening dollar
The weakening of the US dollar is bringing new momentum to technology stocks.
Goldman Sachs' top trader John Flood's latest analysis shows that the continued weakening of the dollar will significantly benefit US stocks, especially the Magnificent Seven (Mag7) in technology.
Flood stated that the dollar has depreciated by 7% this year and is expected to weaken further by 4% before the end of the year. According to Goldman Sachs' macro model calculations, for every 10% decline in the dollar, the earnings per share of the S&P 500 index will increase by approximately 2-3%.
Historical data also shows that such exchange rate mechanisms helped boost US stock earnings beyond expectations in 2017-2018.
The report also indicates that the mechanism by which dollar depreciation enhances US stock earnings is particularly applicable to export-oriented companies, helping to offset rising domestic costs. According to the company's 10-K filing, 28% of the S&P 500 index's revenue comes from international markets. This means that a weaker dollar can directly translate into higher dollar-denominated overseas revenue.
At the sector level, technology is the only sector in the S&P 500 index where more than half of the revenue comes from markets outside the US, giving it a unique advantage in a weakening dollar environment.
Among them, the Mag 7 has the highest exposure to international revenue, with an average of nearly 50% of overseas revenue, significantly higher than the index median of 28%, meaning they will gain excess benefits from the weakening dollar.
In contrast, the Russell 2000 index derives only 20% of its revenue domestically, while the Nasdaq 100 index relies on international markets for nearly 50%.
Flood emphasized that this exposure difference will strengthen the relative performance of the Mag 7, especially during earnings season, potentially enhancing their valuations and attracting more capital inflows
