Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Exxon Mobil Corporation (XOM), Chevron Corporation (CVX) & How Global Trade Affects the Dow (.DJI)

The stock market is looking muted this morning following Census Bureau release showing a narrower-than-expected trade deficit in April. Although the monthly deficit widened slightly from March, the overall trend has been downward over the past year and a half or so. Comments from various Fed speakers today are expected to send the markets oscillating, but as of 10:55 a.m. EDT, the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI) sit at breakeven, with the broader market benchmarks marginally higher.

Exxon Mobil Corporation (NYSE:XOM

But many investors don’t understand just how trade figures affect the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI) and its components. One of the largest factors sending the trade deficit lower in recent years has been the re-emergence of stronger U.S. domestic energy-production as unconventional sources of crude and natural gas have led to sharp declines in imports. In fact, refining companies have turned to exporting some energy products to other countries in order to take advantage of price disparities in the international markets. Although Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI) energy giants Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) haven’t seen the explosive growth that smaller players in shale-gas plays around the country have experienced, the vertically integrated oil companies have nevertheless benefited from domestic production increases, which have contributed to greater profits in their refining and marketing divisions.

More broadly, trade deficit figures often reflect currency fluctuations, and changing foreign-exchange rates also have a huge impact on the Dow’s 30 components. Although a few of the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI)’s members do most of their business in the U.S., most of them are large multinationals with a big presence abroad. What’s been somewhat surprising is that even as the dollar has strengthened in recent months, making it more difficult for U.S. exporters to compete, the trade deficit hasn’t responded by reversing course and moving higher.

Nevertheless, you can expect to see the impact of the strong dollar in earnings reports from many Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI) components for the second quarter starting next month. McDonald’s Corporation (NYSE:MCD) and The Procter & Gamble Company (NYSE:PG) have both shown a lot of sensitivity to currency fluctuations in the past. McDonald’s Corporation (NYSE:MCD) has increasingly relied on its global business reach, getting more than two-thirds of its revenue outside U.S. borders. For its part, The Procter & Gamble Company (NYSE:PG) gets 65% of its sales from its international division, and earlier this year it took a hit when Venezuela devalued its currency, showing how a rising dollar can hurt the consumer giant.

Keeping an eye on trade figures is important, especially for Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI) components with big operations overseas. If current economic tensions among major trade partners ever escalate to more serious problems, then it could have a huge impact on the Dow and the entire stock market.

The article How Global Trade Affects the Dow originally appeared on is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Chevron, McDonald’s, and Procter & Gamble. The Motley Fool owns shares of McDonald’s.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.