By Wallace Witkowski, MarketWatch

SAN FRANCISCO (MarketWatch) -- Financial results from Nike this week could offer a preview of how the rallying U.S. dollar may wind up squeezing corporate profits and outlooks this earnings season.

Stocks finished slightly higher this past week near all-time highs with the Dow Jones Industrial Average (DJI) rising 1.7%, the S&P 500 Index (SPX) finishing up 1.3%, and the Nasdaq Composite Index (RIXF) up 0.3%, after the Federal Reserve indicated rate hikes were not just around the corner and Scotland voted to remain part of the United Kingdom.

Nike Inc. (NKE), the first of the Dow 30 Industrials components to report earnings this season, reports earnings on Thursday. The athletic apparel and gear giant could be a litmus test for earnings season as it has considerable exposure to foreign markets and represents what's expected to be one of the weakest sectors this season: consumer discretionary.

While some analysts are concerned about weak revenue growth over the next few quarters, Mark Luschini, chief investment strategist at Janney Montgomery Scott, said the stronger dollar will likely be a more significant problem.

"I'm more concerned about currency," said Luschini. "Multinationals seeing that strength in the dollar could be a headwind for earnings growth."

Since June 30, the U.S. Dollar Index (DXY), which tracks the dollar against six major currencies, has gained more than 6% after moving in a relatively narrow range in the 12 months prior.

Even back in March, when the dollar index was more than 5% lower than its current level, Nike was warning a stronger dollar would be a significant drag on earnings.

In a recent note, Susquehanna Financial Group analyst Christopher Svezia lowered his full-year earnings estimate by 2 cents to $3.31 a share solely based on the stronger dollar.

"Headwinds are strongest in [Nike's fiscal second quarter] and don't appear to be baked into estimates," Svezia noted.

Analysts surveyed by FactSet expect the following from Nike

 
Fiscal period      Earnings per share Revenue 
Q1 ending August   88 cents           $7.78 billion 
Q2 ending November 66 cents           $7.02 billion 
Q3 ending February 89 cents           $7.55 billion 
Q4 ending May      95 cents           $8.04 billion 
FY 2015            $3.39              $30.37 billion 
 

The higher dollar will likely hit all multinationals, especially in the consumer discretionary sector. As the dollar has gathered strength, consumer discretionary earnings estimates have dropped significantly over the course of the quarter.

Back on June 30, the sector was expected to see an earnings decline of 0.4%. Now, earnings are expected to decline by 5.4%, according to John Butters, senior earnings analyst at FactSet. Much of that drag comes from PulteGroup Inc. (PHM) , which booked a big tax asset valuation in the year ago quarter, Butters said.

But even without Pulte, consumer discretionary is still only looking at a 2.3% gain in earnings, the weakest expected earnings growth sector this season excluding tech and consumer staples.

Other earnings this week lean heavily towards the consumer discretionary sector.

On Monday, AutoZone Inc. (AZO) reports. Bed Bath & Beyond Inc.(BBBY) , Carnival Corp.(CCL), and CarMax Inc. (KMX) are expected to report on Tuesday. Results from Accenture PLC (ACN) , Jabil Circuit Inc. (JBL), Paychex Inc. (PAYX), and KB Home (KBH) come on Wednesday. Micron Technology Inc. (MU) reports on Thursday.

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