Stimulus Hopes Keep Dollar's Head High: 4 Stocks To Add
Zacks Investment Research | Aug 20, 2019 10:04PM ET
On Tuesday, Dollar Index hit a fresh three-week high of 98.40 as stimulus hopes and a delay in additional tariffs on China by the United States raised optimism among investors, stoking their risk appetite. This prompted them to shift to riskier assets such as equity, moving away from safe haven assets like treasuries. This consequently led to a decline in bond, leading to a rise in bond yields that supported gains in the U.S. dollar.
The U.S. dollar has held on to the king’s throne despite rate cuts, yield curve inversion and recessionary fears in the economy.
Slowdown fears in several economies of the world have led their central banks to slash interest rates to aid growth. Central banks in New Zealand, South Korea, Indonesia, South Africa, Turkey, Peru, India and the Philippines have had one or more rate cuts in recent times to keep slowdown at bay. Weakness in these economies have also put pressure on their currencies.
The greenback, however, remains strong as the U.S. economy is relatively better positioned compared with other economies, thus gaining favor from investors, who still view it as a safer currency.
However, President Trump has held a strong dollar for hitting exports and calling upon the Fed for interest rate cuts to help business growth.
In a twitter post, President Trump complained about a strong dollar, which "is sadly hurting other parts of the world."
Stimulus Measures
Stimulus hopes from U.S., China and Germany put aside the fears of a global economic meltdown, which led investors to move to riskier assets.
The White House is considering a temporary payroll tax cut, in order to put more cash in the hands of consumers to spend more and drive demand, thereby stimulating the economy.
China in an effort to spur its economic growth has changed the way commercial lenders set interest rates for loans to reduce borrowing costs. China’s economy has been languishing from trade war with the United States and is in dire need for stimulus.
On the other hand, Germany is readying stimulus plans, which would be put into effect if Europe’s largest economy moves into recession. While no clarity is available now, it might put funds in the hands of consumers to make them spend more. Finance Minister Olaf Scholz indicated that the government would aim to muster 50 billion euros ($55 billion) of extra spending in case of an economic crisis.
The greenback also received support from the postponement of 10% of tariff on $300 billion of Chinese products that was supposed to go into effect on Sep 1.
These news pacified investors and aided the rally in dollar.
Further Movement of Dollar
The path ahead to be charted by the greenback will depend on the Fed Chair Jerome Powell’s comments at Jackson Hole meeting on Friday. The currency might weaken somewhat if the speech signals any potential rate cut.
Get The News You Want
Nevertheless, the U.S. economy continues to grow faster than the rest of the world, as suggested by recent positive data, which should keep the strength in the dollar intact. A strong labor market and booming retail sales underscore the same.
White House economic adviser, Larry Kudlow, said that the U.S. economy is in pretty good shape, and doesn’t see a recession at all.
Stocks to Add
A strong dollar can adversely affect earnings of companies having significant international operations. Thus, at this time, stocks having businesses limited within the U.S, territory and immunity to external shocks should do relatively better.
Molina Healthcare, Inc. (NYSE:MOH) carries a Zacks Rank #1 (Strong Buy). This company from the U.S. healthcare sector, which is one of the market’s healthiest sectors right now, deals in providing government-sponsored insurance programs. It is poised to gain from the increasing baby boomer population.
Molina Healthcare is a pure play U.S.-domiciled company and with no international operations. The stock has witnessed an upward revision in 2019 and 2020 earnings estimates over the past 30 days. The company has gained 13.2% compared with its Original post
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