MONEY stocks

This Could Throw Cold Water on the Dow’s 1,000-Point Rebound

Richard Drew—AP Specialist Charles Boeddinghaus, center, works on the floor of the New York Stock Exchange Thursday, Aug. 27, 2015.

Despite two strong days for the market, investors shouldn't assume this sell-off is over.

For the second straight day, stocks soared on better-than-expected economic news.

After Thursday’s jump of more than 369 points, the Dow Jones industrial average is now up nearly 1,000 points in the past two days.

While that doesn’t erase the Dow’s 1,900-point decline between Aug. 17 and Aug. 25, the bounce back went a long way toward calming nerves on Wall Street.

Don’t be surprised, though, if the jitters return on Friday or next week.


For starters, in volatile times investors have a tendency to take profits heading into a weekend — if for no other reason than to guard against potential surprises that might hit the Asian markets before trading begins in New York on Monday.

It’s also important to remember why stocks surged on Wednesday and Thursday in the first place.

Rate Hikes May Be Off

When stocks were plummeting at the start of this week, investors feared that cratering equities might be signaling a much weaker than expected economy ahead.

But on Wednesday came what Wall Street interpreted as good news: A key Fed official indicated that as a result of recent global market shocks, the case for the Federal Reserve hiking interest rates in September was “less compelling.” That means the Fed isn’t likely to tap the economy’s brakes anytime soon.

Then the Commerce Department reported that orders for durable goods rose faster than expected, damping down recession worries.

And on Thursday, the Commerce Department came back and revised its earlier assessment of economic growth in the second quarter. Instead of growing at an annual rate of 2.3% as was thought, U.S. GDP actually expanded a robust 3.7% in the spring.

That seemed to slam the door on all this recession talk.

However, some market watchers believe the GDP report also may have reopened the door to the Fed raising rates in September.

Rate Hikes May Be On

Brian Singer, a portfolio manager at William Blair, says the new batch of good economic data — and Wall Street’s positive reaction to it — will likely trigger “a cat and mouse game between the markets and the Fed” that could go on for a while.

Here’s how that game is played: When there’s good economic news and equity prices rise, that’s likely to renew talk of rate hikes. And such talk is likely to be jeered by Wall Street in subsequent days.

Conversely, if there’s weak data that sparks a market sell-off, that will likely prompt speculation that the Fed will postpone rate increases. And that could push the equity markets higher.

So investors should brace themselves for ongoing volatility.

A Third Option

To be sure, there’s a small but growing group on Wall Street that believes a September rate hike would actually be bullish, not bearish.

“If anything, if the Fed were to raise rates that would send a signal that the Fed believes economic growth is strong enough to withstand higher rates,” says Kate Warne, investment strategist at Edward Jones. “To us, that’s good news, not bad news.”

Conversely, if the Fed keeps rates at zero — and begins talking up the need for further stimulus through yet another round of quantitative easing, “that would be a huge confidence crusher,” says Liz Ann Sonders, chief investment strategist at Charles Schwab.

At the very least, a Fed rate hike in September “takes off the table one of the market’s big uncertainties,” says Scott Clemons, a managing director for Brown Brothers Harriman.

That’s the uncertainty of when the Fed will finally pull the trigger.

But for now, the cat and mouse game goes on.

MONEY stocks

Emerging Market Worries Prompt Wall St. Selloff, But Bulls Remain

Markets Turbulent On China Unease
Spencer Platt—Getty Images Traders work on the floor of the New York Stock Exchange (NYSE) on August 21, 2015 in New York City. The Dow fell over 150 points in morning trading as global markets continue to react to economic events in China.

Nervousness about China is overshadowing the improving U.S. economy, notes one portfolio manager.

The steep selloff that pushed down the benchmark Standard & Poor’s 500 index 5% over three days may say more about the outlook for emerging markets than U.S. companies in the fourth quarter, fund managers and analysts say.

China’s economic slowdown, recessions in Latin American countries such as Brazil and Chile, and a breakdown in commodity prices – combined with a thinly-traded market as many investors become more focused on tide charts than trading terminals – are prompting traders to overlook improving U.S. economic data, said Alan Gayle, portfolio manager at RidgeWorth Investments.

“There’s a great deal of nervousness around the weakness in China, and that’s overshadowing the fact that the U.S. economy is sound and the European Union economy is firming,” he said.

Sales of existing U.S. homes rose in July to their highest level since 2007. U.S. auto sales, meanwhile, are on track for their best year in a decade.

Attention will return to those domestic metrics as the Federal Reserve begins its annual meeting in Jackson Hole, Wyoming, next week. Investors will be looking for any signs that the central bank is increasingly worried about global issues or whether it is going ahead with what had been a widely-expected interest rate hike in September.

The Fed has said its decision to raise rates will depend on data such as an improving jobs market and housing market. Should the Fed signal that it plans to raise rates, investor sentiment towards the United States and emerging markets may further diverge.

Minutes released Wednesday of the central bank’s most recent meeting revealed Fed officials were concerned about “recent decreases in oil prices and the possibility of adverse spillovers from slower economic growth in China,” a detail which helped spark the selling.

At the same time, North Korea put its troops on war footing Friday after South Korea rejected an ultimatum to halt anti-Pyongyang broadcasts. The prospect of war, or signs of more global worries, could further dampen U.S. stocks in the week ahead.

The slowdown in China and other emerging markets such as Brazil is hurting commodity-related companies, but it is not enough to affect either 2015 or 2016 earnings estimates for the S&P 500 as a whole, said Gina Martin Adams, equity strategist at Wells Fargo. Second-quarter earnings rose 0.1% from a year earlier, an improvement from the expected decline of 3.4%.

Low energy costs should benefit consumer discretionary companies, which Martin Adams expects to grow earnings by 12% for the year, up from her previous forecast of 8%.

Mutual fund managers are also making bets on U.S. companies that get the majority of their revenues from the domestic market. The average large-cap fund is overweight in U.S.-focused companies, including JPMorgan Chase & Co, railroad Union Pacific,, American Express, and Comcast, according to research by Goldman Sachs.

Martin Adams estimates the S&P 500 will reach 2,222 over the next 12 months, an 11% gain from the 1,997 the index reached on midday Friday, after commodity prices bottom and earnings improve.

“The direction of the market is ultimately higher,” she said.

MONEY stocks

Why the Market Meltdown Shouldn’t Scare You Off Stocks

Roulette Wheel with ball on "0"
Alexander Kozachok—Getty Images

Investing may feel like a big gamble now. Here's why it's not.

If you’re someone who’s wary of investing in the stock market, or at the very least are distrustful of the long-term benefits of owning equities, this week’s events probably only added to your skepticism.

After the Dow Jones industrial average plunged nearly 900 points in the past 48 hours, leaving the index down 5.8% for the week and more than 10% off its record close in May, you could almost see the little thought bubbles rise: “Is this the start of bigger troubles ahead?” . . . “How will that affect my 401(k) and my kid’s college funds?” . . . And “why do I keep putting money into stocks?”

Even before the market’s slide—the result of a Wall Street freakout over China’s slowing economy and worries that the Federal Reserve could soon begin raising interest rates just as global growth is deteriorating—there were signs that investors hadn’t fully bought in.

For instance, only a quarter of millennials own stocks, and merely 18% believe that investing in equities is the best way to save for the future. That’s probably because Gen Y graduated into one of the worst economies in decades with a stock market collapse to boot. Plus, unprecedented levels of student loans may hinder their ability to invest.

But baby boomers also seem to be wary of stocks. Yet those nearing retirement will need a healthy portion of their portfolios in higher returning fare like stocks in order to avoid outliving their money.

That may be a tough message to hear after days like Friday. But it shouldn’t. And here’s why:

Think Decades

If you’re someone who thinks investing in stocks is akin to gambling, name the casino where the player wins the vast majority of the time. “Since 1947, the S&P 500’s price return was up in 72% of calendar years,” S&P Capital IQ equity strategist Sam Stovall recently noted. “Add in dividends reinvested and that batting average jumped to 80%.”

In other words, in most years, you’re more likely to see gains by December 31st than losses.

And over rolling 10-year periods, the median annual gain was almost 12%, Stovall said. And cumulatively, “the S&P 500 rose an average 202% during each 10-year period.”

The trick, of course, is that to achieve those gains you need to stay in the market through the peaks and troughs instead of trying to time the market. That’s because research has consistently shown that investors aren’t smart enough to know which stocks will go up and which one will go down — and when and for how long. You’re better off owning a broadly diversified portfolio and holding on for a long time.

Put Things in Proper Perspective

Equating investing to gambling is a natural response to recent events, but the wrong one, says BlackRock chief investment strategist Russ Koesterich.

While the stock market will exhibit volatility in the short term, young investors “have a lot of time to bear that volatility and the difference between making even 5% to 6% in the stock market, relative to what you’re going to make in a bank account, is going to have an enormous impact on how and when you can retire.”

Humans are not purely rational beings who make short-term decisions with long-term consequences in mind. We’re not Vulcans. “It doesn’t come naturally for most people to have a very unemotional systematic approach to investing despite the fact that every single study says that’s the best thing to do,” says Koesterich.

What can you do? Try not watching financial television, or at least train yourself not to act on every bit of news. Whether you realize it or not, each buy or sell decision is an implicit bet on your ability to know which way the wind is going to blow.

And no one is that smart.

TIME stock market

Stocks Tumble on Global Growth Fears

Markets React To Vote In Greece Rejecting Terms Of Bailout
Spencer Platt—Getty Images Traders work on the floor of the New York Stock Exchange.

The Dow index could see its worst trading day in more than a month

A global market sell-off sent U.S. stocks plunging on Thursday morning, as investors worried about flagging oil prices and uncertainty around impending interest rate hike as well as concerns overseas with China’s struggling economy.

The Dow Jones Industrial Average exhibited a decent amount of volatility early Thursday, dropping more than 200 points shortly after the markets opened and then briefly rallying before plunging once again. The blue chip index is currently down roughly 23o points, or 1.3%, on the day. The Dow is on pace to record its worst trading day in more than a month — it lost 261 points on July 8 — and the index has dropped about 560 points, or 3.2%, since the start of August.

The tech-heavy Nasdaq composite has lost nearly 90 points on the day, or 1.8%, while the S&P 500 is down 25 points, or 1.2%. The Nasdaq is down 3.8% since the start of the month, while the S&P 500 is down 2.3% in that time.

The Chicago Board Options Exchange Volatility Index (VIX), a measure of market volatility that is often referred to as the “fear index,” is up nearly 13% on the day.

This morning’s market in the U.S. turbulence follows a day of big losses abroad, where Germany’s DAX fell 2.2% and the Shanghai composite in China dropped more than 3%. Global losses reflected concern over falling oil prices, which are close to dropping below $40 per barrel as global oil supplies continue to outpace demand, as well as ongoing uncertainty over the timing of the U.S. Federal Reserve’s long-awaited interest rate hike. The release of minutes from the Fed’s July meeting showed the central bank’s leaders do not yet feel that U.S. economic conditions have reached the necessary point for the first interest rate increase in nearly a decade, though many economists still feel the rate hike will occur as soon as next month.

MONEY Ask the Expert

How the Fed Affects Bond Prices and Returns

Investing illustration
Robert A. Di Ieso, Jr.

Q: Could you please explain how Fed interest rate policy influences bond prices and returns? — Dave

A: Interest rates that are set by the Federal Reserve don’t directly impact the prices and returns of the bonds that you own directly or through funds.

That’s because the Fed only sets rates on overnight loans that Federal Reserve member banks receive from the Fed itself or from one another, says Jay Sommariva, vice president and senior fixed income portfolio manager at Fort Pitt Capital Group in Pittsburgh, Penn.

As for the longer-term debt that you own in your portfolio, the state of the economy — or rather, the market’s perception of the economy — is what will ultimately determine their yields and conversely their prices. (Bond yields and prices move in the opposite direction.)

So why then are investors so fixated on the Fed’s every move?

By reducing or raising short-term rates, the Fed incrementally cuts or boosts the cost of capital to lending institutions. And that in turn can either nudge the economy toward faster growth by promoting lending or tap the breaks on economic activity if things are heating up.

In December 2008, for example, the Fed lowered its target for the so-called Federal Funds rate to near zero as one effort to stem a full-blown recession.

Now that the economy has turned a corner, investors expect that the Fed will raise its overnight target as early as next month, albeit ever so slightly.

Exactly how the market will initially react is anyone’s guess.

On the one hand, most investors have already factored such an increase into their models. Then again, “the Fed hasn’t raised rates in over eight years,” says Sommariva. “When they finally do, it could be an event.”

To be sure, just as important as what the Fed does is what the Fed says. Case in point: The “Taper Tantrum” of 2013.

When the Fed indicated that its stimulative campaign would soon be coming to an end, it wreaked temporary havoc on the bond market. Once the dust settled, prices recovered and bond yields fell again.

Bottom line: A Fed increase could translate to higher short-term interest rates — and that means a potential decline in prices. Longer-term rates, however, tend to hinge on what investors think about inflation and the economy, as well as what else is happening in the world. Sommariva adds that short-term rates could rise even as longer-term rates come down.

Then again, considering that the yield on 10-year Treasuries has, for the most part, been in steady decline for the last three decades, yields don’t have much room to fall.

At some point they will head higher, and when that happens prices could decline.

MONEY Economy

The Fed Will Probably Raise Interest Rates Twice in 2015

<> on July 16, 2015 in Washington, DC.
Alex Wong—2015 Getty Images Federal Reserve Chair Janet Yellen on July 16, 2015 in Washington, DC.

According to a Reuters survey of economists released on August 13th.

The U.S. Federal Reserve will probably raise interest rates twice this year, with the first increase in almost a decade coming as early as next month, according to a Reuters poll of economists published on Thursday.

The survey gave a median 55% chance that the U.S. central bank would raise its short-term lending rate twice this year. Economists put a 60% probability on a September rate hike and an 85% chance that it would move by year-end.

“If the FOMC (Federal Open Market Committee) acts in September, there is a good possibility that it will in December as well,” said economist Terry Sheehan of Stone & McCarthy in Princeton, New Jersey.

The case for a September monetary policy move was bolstered by solid job gains and a rebound in wages in July. In addition, economic growth accelerated in the second quarter after bad weather constrained it at the start of the year.

After China’s surprise devaluation of the yuan, U.S. financial markets have slightly pushed rate hike expectations to December. The Fed, currently targeting a range of zero to 0.25%, has not raised interest rates since 2006.

The midpoint of the range of federal funds rate expectations in the survey came to 0.375% by the end of September and 0.625% at the turn of the year, unchanged from a July poll.

Even if the Fed raises interest rates twice this year, the tightening process would still be gradual, economists said, citing a strong dollar.

Read next: How Soon Will Your Credit Card’s APR Go Up Once the Fed Raises Interest Rates?

“Their credibility requires a rate increase this year,” said Georgia State University professor emeritus Donald Ratajczak. “The strong dollar suggests that a very slow pace is needed until currency values stabilize.”

Average hourly earnings are expected to rise slightly beginning in 2016, according to the poll.

The economists forecast wage growth averaging 0.5% in the first quarter of 2016 and 0.6% in the second. They had previously expected 0.3% for both periods.

The more than 80 participating economists saw little impact on the economy from the anticipated slight tightening in monetary policy.

The growth estimate for 2015 was unchanged at an average of 2.3%. The survey showed growth accelerating to 2.7% next year, little changed from the July poll.

“Monetary policy will still be very accommodative even after the first couple of Fed rate hikes,” said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida. “Raising rates will be a sign that the Fed believes the recovery has made substantial progress and will continue to improve.”

Inflation forecasts were little changed from the July survey.

— Additional reporting by Lucia Mutikani; Polling by Aara Ramesh and Kailash Bathija

Read next: 3 Myths About Higher Interest Rates

MONEY credit cards

How Soon Will Your Credit Card’s APR Go Up Once the Fed Raises Interest Rates?

Stuart Pearce—Getty Images/age fotostock RM -

The prime rate could go up as soon as the Fed acts.

When the Federal Reserve raises interest rates — and it won’t be today, but may come in September — your credit card’s APR is almost certainly going to go up as well.

For those who carry a balance, that means higher monthly minimums and higher interest charges.

How quickly will they hit you? Once the Fed acts, your card agreement spells it out, and there are variations between banks. Some will act superfast, others will grant customers a brief reprieve.

It has been nine years and one huge recession since June 2006, the last time the Fed voted to raise short-term interest rates. In the interim, a new federal law, the Credit CARD Act of 2009, imposed regulations on how card issuers could raise rates.

In those nine years, card issuers have switched en masse to variable rate cards tied to an index called the prime rate, and the prime rate moves in lock step with the federal funds target rate that the Federal Reserve can change.

The change to variable-rate cards makes sense for the issuers, since the CARD Act contains an exception allowing changes to variable rate card’s index to be passed along to consumers. The question I wanted to answer is: How fast will it happen?

Read next: When No Credit Is Worse Than Bad Credit

I reviewed credit card terms and conditions from the nation’s biggest credit card issuers and found some variation. Most issuers say their cardholders’ APRs will change with the start of their first billing period after the first of the month following the prime rate change. But Capital One says they only make those types of changes quarterly, meaning that cardholders will get a brief reprieve. That reprieve isn’t going to be a huge deal for most folks, but a lower APR is a lower APR, even if it’s only for a few extra weeks or months.

Don’t expect to find information about these policies easily, though. While some issuers addressed prime rate changes in the terms and conditions pages on their website, making it easy for card applicants to find, others didn’t. Some issuers — including Citi, Chase and Bank of America — mentioned the information only in the full credit card agreement, which may or may not be easy to find when applying for a specific card.

Here’s a look at what I found in issuers’ terms and conditions:

The Starwood Preferred Guest Credit Card from American Express
“When the Prime Rate changes, the resulting changes to variable APRs take effect as of the first day of the billing period.”

Barclaycard Arrival Plus World Elite MasterCard

“We use the highest Prime Rate listed in The Wall Street Journal on the last business day of each month…”

Wells Fargo Cash Back Visa Signature Card
“For each billing period we will use the U.S. Prime Rate, or the average of the U.S. Prime Rates if there is more than one, published in the Money Rates column of The Wall Street Journal three business days prior to your billing statement closing date.”

Discover It
“We calculate variable rates based on the Prime Rate by using the highest U.S. Prime Rate listed in The Wall Street Journal on the last business day of the month.”

Capital One Quicksilver
“Your variable rates may change when the Prime rate changes. We calculate variable rates by adding a percentage to the Prime rate published in The Wall Street Journal on the 25th day of each month. If the Journal is not published on that day, then see the immediately preceding edition. Variable rates on the following segment(s) will be updated quarterly and will take effect on the first day of your January, April, July and October billing periods.”

Again, Citi, Chase and Bank of America don’t address the timing of the change in their cards’ terms and conditions on their websites. You have to dig out the information in the full card agreement — a far lengthier, far denser document.

Here’s what these issuers say:

Citi AAdvantage Platinum Select MasterCard
“If the Prime Rate causes an APR to change, we put the new APR into effect as of the first day of the billing period for which we calculate the APR.”

Chase Freedom
“Any new rate will be applied as of the first day of the billing cycle during which the Prime Rate has changed.”

And Bank of America provides just sample credit card agreements, because “final rate and fee information depends on your credit history, so your actual rates and terms will be found on your Credit Card Agreement.” Here’s what they say in their sample credit card agreement for a Bank of America Visa/MasterCard Preferred Gold-Platinum card: “An increase or decrease in the index will cause a corresponding increase or decrease in your variable rates on the first day of your billing cycle that begins in the same month in which the index is published.”

Clear as a bell, eh? Not even close.

So what should you do? Your best plan of action is to tackle any credit card debt you have, while you still have time to pay it off at a lower rate. If you have no balance, a higher rate is only a theoretical problem.If you do carry a balance into the coming rate-hike era, the increases will happen without you having to do anything. It may happen more quickly or slowly, depending on which card you have, but it will happen. Meanwhile, if you’d like some clarification on exactly how and when your bank will implement the increase, your best move would be to just pick up the phone and give them a call. That’ll likely be a whole lot easier than searching through a giant credit card agreement for language that probably won’t be easy to understand anyway.

More From

MONEY The Economy

Americans’ Net Worth Hits $85 Trillion, but Who Has the Money?

A new report from the Federal Reserve reveals how much U.S. households' wealth has risen.

The report showed net worth went up by $1.6 trillion between January and March 2015, which brings our collective net worth to $84.9 trillion. A sizable portion of the increase came from real estate, estimated at $503 billion. Household-owned stocks and mutual funds accounted for $487 billion. The takeaway from these numbers is that Americans, as a whole, are doing well. But although the report may look good, we don’t know who exactly is doing well. Job growth has, overall, come from low-wage jobs while the middle class stagnates.

MONEY stocks

Give Your Investments a Midyear Checkup

Kagan McLeod

How to ensure your wealth is still in good health.

Halfway into the year, and 2015 may have already thrown you and your financial plans for a loop.

Stocks, which were supposed to slow as the bull market entered its seventh year, are back to setting all-time highs—and have gotten frothy as a result. Gas prices, which were on the verge of plunging below $2 a gallon, have reversed course and are now headed toward $3. And the job market, once on a roll, looks to have hit another speed bump.

Okay, the changes aren’t of the magnitude of what you saw in the financial crisis. But they don’t have to be to throw your financial plans off-kilter. As with your annual physical exam, the midway point of the year is a smart time to take some vitals, run some tests, and reassess your own situation. Over the coming weeks, we’ll provide you with a wealth-care checklist. First up: a review of your investments.


Ailment: Rising rates. The Federal Reserve says it could raise interest rates at any one of its upcoming meetings now—which would mark the first rate increase in nearly nine years.

Hiking rates is like stepping on the economy’s brakes. Historically, there’s an 80% chance stocks will fall by 5% or more once investors see Fed “tightening” as imminent. Moreover, bond prices move in the opposite direction of market rates, so fixed-income funds could take a hit too. When the Fed lifted rates in 1994, for instance, intermediate-term bond prices sank 11.1%.

Treatment: Don’t overreact. The natural inclination is to be überconservative. But market watchers from Warren Buffett to bond guru Bill Gross think global growth is slow enough for the Fed to be patient. And even if the central bank acts in the coming months, short-term rates are still expected to rise only about half a percentage point by year-end, according to a survey of economists by Blue Chip Economic Indicators.

Move to the middle on bonds. The traditional advice for fixed income is to “shorten up.” That is, sell funds holding long-maturity bonds and hide out in short-term debt that’s less vulnerable to price declines. But with short rates still near zero, you could be leaving a lot of money on the table, warns BlackRock portfolio manager Rick Rieder. Plus there’s no guarantee bonds will lose money. When rates rose in 2005, bond prices fell but investors earned 1% on a total return basis when factoring in yields. So instead of going all short, stick with intermediate funds like Dodge & Cox Income DODGE & COX INCOME FUND DODIX 0.07% , whose nearly 3% yield can soften the blow from price declines.

Stay (mostly) the course with stocks. Not all pullbacks turn into bear markets. In fact, history shows most sectors keep rising six months after the Fed starts raising rates, including economically sensitive ones like technology and consumer discretionary, notes S&P Capital IQ’s Sam Stovall. That’s why Stovall says you’re better off holding on and selling equities only if you need to rebalance. In which case…


Ailment: A frothy market. Stocks are still on a roll, with blue-chip equity funds having posted 15% annual gains over the past three years, vs. 3% for intermediate bonds. What’s wrong with that? Based on 10 years of average profits, the price/earnings ratio for stocks is now above 27, where it was leading up to the Great Depression, the 2000 tech wreck, and the 2007 financial crisis. Even if there is selloff here, history says to expect meager returns over the next 10 years.

Treatment: Get back to your target weight. If you started with 60% stocks/40% bonds three years ago, you’re closer to 70% stocks now. Shift your allocation back before the market does it for you, says planner Eric Roberge.

Use the 5% rule: Don’t overmedicate, as rebalancing can trigger trading costs and taxes. So rebalance only if your mix shifted by five percentage points or more, says Francis Kinniry with Vanguard’s investment strategy group.

Think small: Since rebalancing is about selling high, unload your frothiest equities first. Over the past 15 years, small stocks have trounced the S&P 500 by four percentage points annually, and now trade above their historical 3% P/E premium to bluechip shares.

Sell American: In the past decade, U.S. stocks have outpaced foreign equities by 3.5 points a year. American shares now trade at a 15% higher P/E ratio than global stocks, even though they have historically traded at similar valuations.

MONEY currencies

Why the Strong Dollar Hurts Investors and What They Should Do About it

Johnson & Johnson products
John Raoux—AP Johnson & Johnson products

The strong dollar is hurting some multi-national corporations. That doesn't mean you should do anything.

Johnson & Johnson endured a difficult first quarter. Profits at the healthcare behemoth declined by almost 9%, and the company lowered earnings projections for the rest of the year.

Part of the blame went to poor sales of a particular hepatitis drug. But J&J also took a hit from something that its executives can’t in any way control: foreign exchange.

Over the past 12 months, the U.S. dollar has gained against every major currency, according to data from Bloomberg, including more than 20% against the euro.

That can be pleasant for American consumers and travelers, whose dollars can suddenly buy more imported goods and stretch further when spent abroad in places like Europe.

But a strong dollar can also have negative consequences, and the losers include multinational American companies like J&J that sell goods overseas, where American exports are suddenly more expensive than before and thus less competitive. Indeed, currency fluctuations sliced the company’s earnings by 7.2%.

What’s more, there’s reason to believe this kind of impact will be felt across the U.S. economy. The International Monetary Fund recently projected that currency effects would decrease U.S. economic growth this year by half a percentage point, to 3.1%.

In light of all this, investors may be wondering if they should make some changes to their domestic stock portfolio, perhaps lightening up on companies with lots of international business. Here are two reasons to hold off.

The Strong Dollar Is Already Baked Into Stock Prices

Intelligent folks can disagree on the efficient markets hypothesis, which holds that share prices always reflect all relevant information. But at least some of today’s currency issues are already cooked into company stock prices.

In other words, it’s probably too late to avoid the negative currency effects—and selling now might mean missing out when the currency pendulum swings the other way. You can see that in Johnson & Johnson: While the company’s numbers look bad on paper, they actually outperformed analysts’ expectations. The company’s stock was unchanged yesterday, and is actually up a bit over the past month.

That’s also true of the broader U.S. stock market: The S&P 500, which collectively takes in about half of its revenue from overseas, is up almost 2% so far this year.

Moreover, Europe won’t stay on its current economic path forever. Eventually the economies of its member nations will improve, the European Central Bank will stop buying bonds, and interest rates will one day rise. When that happens, demand for euros will increase.

The Dollar Won’t Stay Strong Forever

One reason the greenback has performed so well against other currencies is that our monetary policy looks downright hawkish by comparison. The Bank of Japan and the European Central Bank are holding down interest rates and buying up bonds in an effort to lower interest rates, stimulate spending, and improve economic growth. If that plan sounds familiar, that’s because the U.S. Federal Reserve spent years doing the same thing. These days the conventional wisdom is that the Fed will start to raise rates this summer or fall, thereby making dollars more desirable.

But the conventional wisdom isn’t always right—and in fact economic data over the past couple of weeks has revealed some weakness in the U.S. Last month’s jobs report showed employers adding fewer workers than expected, while retail sales underperformed as well. And while a plurality of economists polled by Bloomberg couple of weeks ago estimated that the Fed would raise interest rates in June, the most recent poll shows that a majority now think that increase won’t be announced until September. As a result, the dollar has actually underperformed the yen, euro and pound over the past month.

Which all means that you can be made to look silly by trying to time the market.

“From the prospective of individual investors with an intermediate to long-term time horizon, you shouldn’t be focused on the dollar,” says John Toohey, head of equities at USAA Investments. “It all tends to even out over time.”

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