Two factors right now are interacting to provide a distorted view of valuations for investors that make decisions based on historical P/E analyses of large U.S. stocks. On one hand, you have the growing trend of international profits contributing to the overall earnings of large U.S. multinationals. The average S&P 500 company currently generates 42% of its profits overseas. That matters because of our second factor: In the past twelve months, the United States dollar has gained almost 25% in value compared to the global basket of currencies index.
Normally, overseas profits do not require a separate distinction unless you are trying to analyze the amount of cash available for buybacks and dividends because foreign profits sometimes get trapped overseas to avoid the 35% repatriation tax. During the early 2000s, the United States dollar only lost about 5% in total against global currencies during the period 2002-2006 period between the … Read the rest of this article!