U.S. Markets close in 5 hrs 3 mins

Stimulus Hopes Keep Dollar's Head High: 4 Stocks to Add

Sapna Bagaria

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.

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. 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 industry’s decline of 0.4%, year to date.

Universal Health Services, Inc. UHS carries a Zacks Rank #1. It one of the nation’s largest hospital management companies, and has more than 350 acute care hospitals, behavioral health facilities and ambulatory centers across the United States. Given the rising need for behavioral disorders and acute care, this hospital industry should see a rise in revenues. Its top line has witnessed a 2010-2018 CAGR of 10.35%

The stock has witnessed an upward revision in 2019 and 2020 earnings estimates over the past 30 days.  The company has gained 25% compared with its industry’s growth of 4%, year to date.

The Allstate Corp. ALL carries a Zacks Rank #2 (Buy). It is a personal lines insurer in United States. Though low interest rates affect the net investment income of the insurer, the company has been witnessing in increase in premium from its Protection business. Also, recent acquisitions to diversify its business and expand the Service business bode well for long-term growth.

The stock has witnessed an upward revision in 2019 and 2020 earnings estimates over the past seven days. The company has gained 25% compared with its industry’s gain of 3.1%, year to date.

YETI Holdings, Inc. YETI carrying a Zacks Rank #2 (Buy) designs, markets and distributes products for the outdoor and recreation market under the YETI brand primarily in the United States.

The company's products are designed for use in outdoor activities, including recreational and professional pursuits targeting various categories, including hunting, fishing, camping, barbecue, farm and ranch activities.

The stock has witnessed an upward revision in 2019 and 2020 earnings estimates over the past 30 days. The company has gained 89% compared with its industry’s growth of 11.3%, year to date.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.

See 7 breakthrough stocks now>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The Allstate Corporation (ALL) : Free Stock Analysis Report
Molina Healthcare, Inc (MOH) : Free Stock Analysis Report
Universal Health Services, Inc. (UHS) : Free Stock Analysis Report
YETI Holdings, Inc. (YETI) : Free Stock Analysis Report
To read this article on Zacks.com click here.