The increase in the value of the US dollar is challenging profit expectations of multinational American companies like Amazon.com and Apple. Investors are questioning how long the stock market rally, supported by the strong profit growth of technology companies over the past two years, can withstand the pressure of this robust dollar rise. Since November 2022, the dollar has approached its strongest level. This poses a significant threat to major technology stocks like Amazon and Apple that have driven the S&P 500 Index to its peak in the last two years, especially with rising profit figures. While the dollar has eased slightly in the short term due to the postponement of tariffs on Canada and Mexico, the demand for protection against the possibility of the dollar rising further is at its highest level in the last two years. The impact of President Donald Trump’s economic policies is crucial in this rise. Often, unexpected dollar rallies deal the most significant blow to company balance sheets. Howard Du, a currency strategist at Bank of America, says, “Unexpected dollar rallies usually deal the biggest blow to company balance sheets.” According to Goldman Sachs data, the issue of “foreign exchange rates” (FX) is raised in approximately 40% of profit disclosures made by S&P 500 companies. Apple predicts that this exchange rate trend will continue in the upcoming period. Although Amazon’s latest quarter results were mostly positive, presenting lower estimates for the first quarter than expected has raised concerns among investors. A significant reason for this is the pressure created by foreign exchange rates. The strong dollar reduces export demand and diminishes the value of overseas earnings. Portfolio manager Patrick Fruzzetti at Rose Advisors states, “The strengthening dollar can harm these companies and negatively affect some business sectors even without tariffs.” In mid-2014, during a period when the dollar gained more than 25% in value, and in 2021-2022 when it rose to the same extent, S&P 500 companies experienced an earnings recession. During the beginning of 2018 when the Trump administration implemented tariffs and the dollar increased by up to 10%, profits were reduced and the S&P 500 lost nearly 20% in value during that time. President of the foreign exchange sales division at U.S. Bancorp, Paula Comings, says, “The general expectation is for the dollar to continue to strengthen and this trend might last until 2025.” Stock investors, although at times they tend to overlook the negative effects of a strong dollar on profits, are closely monitoring the situation, especially with company valuations near historical highs. The index that follows the technology giants dubbed the “Magnificent Seven” by Bloomberg is trading at a price-earnings ratio of 30 times the estimated earnings for the next 12 months. This ratio was at 20 by the end of 2022. For comparison, the S&P 500 average was around 22 times during the same period. The US imposing a 10% tariff on all products coming from China could also challenge these companies. Director of investment strategy at Strategas, Ryan Grabinski, states that Tesla Inc., deriving more than 20% of its revenues from China, is one of the companies that will be most affected, followed by Nvidia Corp. and Apple with approximately 16%. Meta Platforms Inc. only generates 2.1% of its revenue from Canada. The rest of the Magnificent Seven have limited revenue ties with Mexico. Grabinski points out, “Tariffs towards China and China retaliations are what most worries the market in terms of revenues.” Gina Martin Adams, chief equity strategist at Bloomberg Intelligence, highlights that tariffs pose a significant risk. This is because multinational companies have become more dependent on the US market compared to the period when Trump imposed the initial tariffs. Martin Adams says, “Multinational companies will either choose to return to the US or seek out different trading partners and revenue sources. There is a major dilemma here.” Martin Adams also notes that during the post-pandemic period, the dollar, stocks, and company earnings have moved unusually in the same direction. If the dollar continues to rise, things could revert to the previous ‘normal,’ putting pressure on companies like Nvidia, Alphabet (Google), Amazon, Tesla, and Broadcom that heavily rely on profit growth. These companies are more sensitive to dollar movements compared to the general market. On the other hand, proposed new tax cuts in Washington are expected to halve the tax burden of S&P 500 companies compared to the 2017 tax package. According to Bloomberg Intelligence, this could further complicate reaching the estimated earnings per share (EPS) increase of “over 20%” for the next 12 months.