Wilson stated that industries oriented toward the domestic market will outperform those that rely on international revenue. Among the S&P 500 constituents, 30% of sales depend on international markets. The overseas market share is largest for household products, Technology Hardware, and CSI SWS Food & Beverage index, while Telecommunication Services and utility industries are the least affected.
Due to strong non-farm payrolls reducing traders' bets on rate cuts by the Federal Reserve, today $USD (USDindex.FX)$ rose above 110, hitting a new high since November 2022. As the USD surges, the earnings season for US stocks is about to commence, and Morgan Stanley's Chief Analyst Michael Wilson stated that this time may be different.

Wilson noted that a strong dollar will lead to a 'significant differentiation' in US corporate earnings, with domestic industries outperforming those that rely on international revenue.
Specifically, a strong dollar usually results in greater performance dispersion among S&P 500 Index constituents, of which 30% of sales depend on international markets. The overseas market share is largest for household products, Technology Hardware, and CSI SWS Food & Beverage index, while Telecommunication Services and utility industries are the least affected.
Wilson also stated:
"We believe that a strong dollar could be a key factor for significant performance differentiation in this earnings season. It is expected that industries with a high correlation to the dollar will continue to lag in performance recently."
However, Wilson also stated that as long as the main driving force behind the rise of the USD remains strong domestic growth in the USA, the overall performance of the S&P 500 Index may still show resilience.
Although Analysts have lowered their profit expectations for the fourth quarter Earnings Reports season, Wilson believes that market expectations are still relatively high compared to recent quarters, which increases the difficulty for companies to exceed expectations. David Kostin, Chief Equity Strategist at Goldman Sachs, also indicated that he expects the extent of corporate surprises in this Earnings Reports season to "moderate."
Additionally, it is noteworthy that Wilson abandoned his long-standing bearish view on the stock market in mid-2024. This year, as the Federal Reserve's policy outlook became more hawkish and bond yields soared, the rise of US stocks has slowed down. Especially as the yield on the 10-year Treasury bond approaches the critical threshold of 5%, investors and strategists are warning that the stock market may decline further.
Editor/Somer