Although the S&P 500 is considered to be a gauge of large cap US equities, many investors would be surprised to learn that some of the companies in the index are hardly American at all. For example, when it comes to iconic American brands, names that come to mind are McDonald's (MCD), Coca Cola (KO), and Heinz (HNZ). Would you believe, though, that each one of these companies generates more than half of their sales outside of the United States?
Since different companies have more exposure to international sources than others, fluctuations in the value of the US dollar can have a significant impact on stock performance. Companies that generate most of their revenues outside the United States are adversely impacted when the US Dollar appreciates, while companies with more domestic exposure benefit. Earlier this week, we published a report that contained the chart below. In this chart, we created two baskets of S&P 500 stocks. The first basket contained stocks that generate 100% of their revenues in the United States (Internationals), while the second basket contained S&P 500 stocks that generate more than half of their sales outside the United States.
As shown in the chart, since the start of the second quarter when the problems in Europe bubbled up and the Euro cratered, companies in our Internationals basket have dropped significantly more than the basket of Domestics. At current levels, the spread between the two baskets is now at its highest levels of the year!