The answer, straight from the horse's (David Kostin) mouth:

US dollar strength dominated every client discussion this week.

Investors are concerned about the impact of the strength of the USD on S&P 500 earnings growth and stock market performance. Historical returns and our earnings model indicate that direct impacts of a stronger dollar on index-level equity performance are small, but indirect impacts could be larger should USD appreciation weigh more heavily on economic growth, particularly in the US.

Which directly contradicts the Fed's conventional narrative ever since the USD surge began in the second half of 2014, namely that a stronger dollar is good for the US economy, something we noted last week in "Goldman's Cohn Slams Fed's Fisher: A Soaring Dollar Is Not Positive For US Jobs, Companies."

The problem, as Goldman notes, and as technicals suggest now that the key 1.05 support has been breached, is that the EUR can keep crashing, dropping as low as 0.84, and in the process leading to an earnings massacre for the S&P:

The euro has collapsed by 12% YTD and by 24% during the past 12 months. Goldman Sachs FX strategists forecast the euro will decline by a further 10% during the next 12 months to reach 0.95 (see Exhibit 1). Data through December show net outflows on a trend basis by Euro zone residents for the first time in many years and this pattern should persist as the implications of QE by the ECB become more apparent. The anticipated normalization of US monetary policy will be another catalyst for a weaker euro. Moreover, we project the euro will keep falling and ultimately experience a 24% drop from current levels to reach 0.80 by the end of 2017.

 

As for why clients - the same clients who are almost certainly long the biggest bandwagon trade of 2015 - are finally freaking out about the dollar strength, almost a year into this trend, here is Goldman's explanation:

At the index level, the direct impact of currency moves appears small. However, a move in the USD has the potential to influence EPS growth indirectly through economic consequences. To the extent that USD strength weighs on GDP growth, corporate profitability would be affected. Unsurprisingly, US GDP growth is most important. A 100 bp adjustment in US GDP growth changes the S&P 500’s projected EPS by 5%, or $6 per  share. At the stock level, FX moves have a large impact on reported results. Our S&P 500 Beige Book noted that firms with the highest international sales faced significant pressure from a strengthening USD. Managements of PG, JNJ, UTX, IBM, GOOGL, DD, and MCD all commented on the negative impact on results from the strengthening USD.

And, as INTC broke the seal last weak, expect many more warnings in the coming weeks as more and more companies realize that i) the dead cat bounce in oil was just that and ii) the long anticipated mean-reversion drop in the USD is just not going to take place until the Fed relents, and either ends any rate hike speculation, or hikes, only to be Jean-Claude Triche'd, and promptly send the US economy into a tailspin recession.

While we wait, Goldman has a suggestion: just ignore companies that have FX exposure:

"US stocks with high domestic sales offer better growth and value and fundamentals than firms with high sales exposure to Western Europe.Currently the 50 stocks in our domestic revenue basket have lower beta (1.0 vs. 1.1), faster sales growth (5% vs. 3%), faster EPS growth (9% and 7%), and the same dividend yield (1.6%) but trade at a lower forward P/E multiple (18.7x vs. 19.1x) than the 50 stocks in our high Europe sales portfolio."

Which is logical, the only issue with that is that it bets the farm on a US consumer who, as the past three months of plunging retail sales and contracting consumer (and mostly credit card debt), and surging savings rate have shown, is once again fully tapped out.