A strong dollar
The US dollar has been rallying against other currencies in the last three years. The strength of the dollar measured against currencies that are widely used in international trade is measured by the Trade Weighted Dollar Index.
This index has been rising steadily over last three years. The index increased from 101.9 in the beginning of 2014 to 123.8 at the end of 2015.
According to the American Hotel and Lodging Association, about 20% of the total lodging sales came from international travelers in 2014. Most of the international travelers to the US come from Canada, Mexico, the UK, Japan, and China. The US dollar has appreciated considerably against the currencies of all these countries.
The strong dollar has created challenging headwinds for the hotel industry, and tourists may look for alternative tourist destinations. It also affects the length of the stay for international tourists and how they spend their money.
Starwood (HOT) appears to have large exposure to cities that are frequently visited by international tourists. The company is expected to be affected the most, followed by Hyatt (H), Hilton (HLT), and Marriott (MAR). Investors can gain exposure to the lodging sector by investing in the First Trust Consumer Discretionary AlphaDEX ETF (FXD), which invests 9.3% in the sector.