Everyone's talking about currency and yet no one's doing anything about it. Whoops, that's wrong, the market's doing something about it. The market's frantically discounting the next big currency blow-ups and taking down stocks to get ahead of the strength of the dollar.
Take Boeing (BA), which reports tomorrow. We know from outfits as varied as General Electric (GE), Honeywell (HON), Alcoa (AA) and United Technologies (UTX) that the aircraft-parts business is booming. We know from American (AAL), Delta (DAL) and United Continental (UAL) that there is incredibly strong demand for planes. We know from the defense companies that military spending from countries other than the United States is picking up, and that could help Boeing.
But we also know that only 43% of Boeing's earnings come from the United States. We also know it's highly unlikely that Boeing is using the current rate of the dollar versus a basket of currencies when it modeled its 2015. The analysts may not have gotten ahead of the strong dollar's destruction to the bottom line, and the company certainly hasn't preannounced anything but strong orders, yet the stock's been hammered from $138 to $131 in preparation for tomorrow's report. That could either cushion the blow or actually cause a bottom.
The same thing is happening for PepsiCo (PEP). Here's the best-performing packaged goods company by far and Indra Nooyi is one of the best chief executive officers. But she is not in charge of the world's currencies, and you have to expect that while Pepsi is taking share worldwide in many businesses, it might not be on the right page with this currency decline when it comes to current analyst forecasts around the Street. So who knows what kind of damage might be done to the 50% of the sales that come from overseas when the weaker currencies are translated back to the home-base currency.
Again, the market knows, which is why the stock is being crushed ahead of the Feb. 11 report. Notice that the stock, down five points from its high, is in a furious transformation, down three points for no particular reason, except the most important one: currency anticipation.
Technology stocks almost all have a very big business overseas. Some have already flagged the issue, like Avnet (AVT), last week on "Mad Money," where CEO Rick Hamada explained it's the cost of doing business and that's always been the case. So his stock gets hit less hard because he'd been open before about the hazards of dollar strength. But we are seeing a host of tech companies with big overseas businesses get taken down a notch, as is the case with Salesforce.com (CRM) and Cisco (CSCO), which have not said anything of late about currencies.
There are three other groups of stocks worth mentioning. First, the ones that had currency problems and triumphed over them, such as Honeywell and General Electric and most, important, Starbucks (SBUX). These companies didn't skip a beat. Neither did Netflix (NFLX), for that matter, as its business seems almost immune from currency issues as it has no comparisons to previous years. Call it virgin territory.
Second, there are the companies that have already been reset, namely Kimberly-Clark (KMB), down 10 points after its currency hit, which is now almost fully discounted.
And finally, there's the Holy Grail, companies that don't even have any business overseas. The restaurants, the retailers, they all held right in today and offered you no real bargains at all. These are the ones to key on. These are the ones you need a second down day to buy.
I just don't know if you are going to get one.