I forgot to Sell in May!
The Brexit is proving to be mind-bogglingly complex, but for those interested in the stock market, it boils down to three immediate knock-on effects:
- A potential economic slowdown reducing capital investments
- Lower consumer spending — hurting consumer discretionary stocks, and
- A stronger dollar reducing earnings for energy, materials, industrials.
Working out the impact on various sectors is complicated because almost all the players in the biggest sectors have global exposure. So simply buying consumer staples like Procter & Gamble is no panacea; they get almost two-thirds of their revenues overseas.
One thing we do know: the companies with the largest exposure overseas have already been reducing their earnings and revenue projections by a greater degree than companies with a more U.S.-based focus.
According to Factset, companies that generate less than 50 percent of their sales outside the U.S. will see an estimated sales growth rate of 2.5 percent for the second quarter. For companies that generate more than 50% of sales outside the U.S., the estimated sales decline is -9 percent.
That is a big difference — from growth of 2.5 percent to a decline of 9.0 percent.
The same is true for earnings. Companies that generate less than 50 percent of their sales outside the U.S. are seeing earnings drop 2.8 percent; those with more than 50 percent of their sales outside the U.S. are expecting an earnings decline of 9.9 percent.
This is due to a combination of 1) the stronger dollar, and 2) weaker economic activity.
I haven't even talked about third quarter, but my point is, this will likely impact the third quarter even more.