Strong dollar may slam the brakes on Ford's rally

Ford emblems are shown in front of a Ford showroom in Manila, Philippines, in this June 27, 2012 photo.
Noel Celis |AFP | Getty Images

The surge in the U.S. dollar this month to an almost seven-year high versus the yen is very bad news for Ford investors, if past history is any guide.

In the six months following a 5 percent or greater surge in the dollar-yen, Ford shares were negative almost 80 percent of the time with a median return of negative 9 percent, according to analysis by using Kensho, a quantitative analytics tool.

One could reason that when the dollar strengthens by this magnitude, it raises the relative prices of Ford vehicles in the international marketplace compared to Toyota and others.

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However, somebody better tell those investors who have bid up Ford shares by almost 11 percent this month. Especially since the dollar-yen rally in November stands at greater than 7 percent and counting.

The dollar is surging amid signs of an improving labor market, a stronger economy and stable-to-rising consumer prices. Also, nothing in the Federal Reserve meeting minutes released Thursday indicated that the central bank would not be on a course to raise interest rates sometime next year.

Using Kensho, looked at all the occasions since 1980 when the dollar-yen climbed more than 5 percent in a month's time and the subsequent effect six months later on the returns of members of the S&P 500 Index.

Shares of General Motors weren't far behind Ford in the negative column. Shares of GM dropped 67 percent of the time following a dollar-yen surge with a median return of negative 8 percent.

Other large exporters outside of the auto industry also posted negative returns, including the router king Cisco and Dover, a maker of industrial equipment and components.

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On the flip side, the search dispelled what is a widely held view of the consumer products industry's relationship to the dollar. A strong dollar was thought to mean death for makers of cereal and toothpaste because it raises their prices against international competitors.

Well that simply isn't the case. Shares of Clorox, Procter & Gamble and General Mills increased on 90 percent of the occasions following a dollar surge. Clorox was the best outright performer, with the shares posting a whopping median return of 14 percent. The median returns for Procter & Gamble and General Mills were 7 percent and 5 percent, respectively.

Looking at the recent earnings reports and conference calls from these major consumer product makers, currency costs are an ominous presence. Multiple references are made to a strong currency impacting sales.

"We are operating, though, in an extremely different macroenvironment … with a dollar that continues to strengthen," P&G Chief Financial Officer Jon Moeller said on the company's Oct. 24 earnings call.

So why are they able to buck this negative headwind that they themselves cite as a big negative force? Well, the other constant topic of these earnings calls is costs. A strengthening dollar nails the price of commodities such as rubber and plastics used to make these consumer goods.

Also, the companies have gotten really good at deftly passing higher currency costs onto consumers in the form of price increases. For example, P&G raised prices on some Tide brands last quarter by shrinking the amount of liquid per standard bottles.

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So falling input costs combined with price increases actually make international makers of cereal and detergent strong-dollar winners, not automatic losers as was long believed on Wall Street. Go figure.

CNBC's parent NBCUniversal is a minority investor in Kensho.