Bloomberg Fed Chair Janet Yellen If you believe the greenback will be stronger for longer, domestic companies should outperform those with international exposure.
While the dollar has been “been on a tear,” Bespoke Investment Group writes that there is a case to be made for long-term strength. For one, the U.S. economy is gaining footing — GDP advanced at a 4% clip in the second quarter. And as the Federal Reserve continues to pull back on its asset purchasing program, even if rates aren’t spiking higher, Bespoke writes,
“as dovish as Janet Yellen and the rest of the FOMC may be, the days of zero interest rates are numbered and coming to an end.”
Based on the view that the dollar will continue to outperform most of its major global peers, Bespoke writes:
“We would also expect U.S. stocks, and more specifically stocks with domestic exposure, to outperform stocks [that are] more exposed to international markets. Another factor working in favor of domestically-focused U.S. stocks is gas prices. The national average price of a gallon of gas has declined every day this month for a total decline of 4.3%. … When the dollar is strong, companies with a large proportion of international revenue typically underperform, while companies with a larger percentage of domestic exposure outperform. Two sectors that have been negatively impacted by recent strength in the dollar are industrials and consumer staples.”
Carving out Standard & Poor’s 500 index names with mostly U.S. revenue, Bespoke says that if the dollar rallys, these stocks – with positive trends — could outperform the broader market. A third of them are financials, two are utilities:
Apartment Invest & Management (AIV)
Ameriprise (AMP)
Edison International (EIX)
Host Hotels & Resorts (HST)
Kimco Realty (KIM)
Kroger (KR)
Lincoln National (LNC)
Newfield Exploration (NFX)
Republic Services (RSG)
UnitedHealth (UNH)
Verizon (VZ)
Wells Fargo (WFC)
WellPoint (WLP)
Wyndham Worldwide (WYN)
Xcel Energy Utilities (XEL)
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