BofA Merrill Lynch Slashes S&P 500's Earnings Estimates

Bank of America Merrill Lynch cut its 2015 S&P 500 EPS estimates by $2 to reflect a stronger U.S. dollar, the analysts said in a note today. The analysts also said that the sustained 50 percent drop in crude oil would drive earnings lower. Bank of America believes that these will continue to pressure earnings growth, leading to EPS of $126 for the S&P 500 in 2016 compared with expectations of $128 prior.

Bank of America estimates that the U.S. dollar will be at parity with the Euro by the end of 2015. For each 10 percent rise in the dollar, the analysts estimate that the S&P 500 will experience a $3-4 drop in earnings. The Guggenheim CurrencyShares Euro Trust FXE shed exactly 10 percent this year.

However, instead of the S&P 500 falling during periods of dollar strength, Bank of America said multiples expanded, suggesting that the market will look past near-term EPS contraction.

The SPDR S&P 500 ETF Trust SPY gained 1.3 percent this year and more than 13 percent in the past 52-weeks as low interest rates continued to prop equity markets.

The United States Oil Fund LP USO lost 8.5 percent year to date and 48.6 percent in the past year.