The U.S. dollar has maintained a strong rally so far this year, recently scaling a three-year high against a basket of six other major currencies. The U.S. Dollar Currency Index rose 0.24% to 99.688 on Feb 19, its highest since May 12, 2017.
The euro in particular traded slightly lower against the greenback, thanks to a survey showing weakening consumer sentiment in Germany. Halt in production among several German companies operating in China dented consumers’ confidence. The coronavirus epidemic has started to take a toll on such companies. Germany’s forward-looking consumer sentiment index is now projected to decline to 9.8 points in March from 9.9 points in February.
Against another major currency – the Japanese yen – the dollar rose 1.29% to 111.28, its highest since last May. Japan’s economy contracted at the fastest pace in the December quarter in almost six years, something that didn’t bode well for the yen. Market pundits are now claiming that Japan’s economy is heading for a recession after the world’s third-largest economy saw its GDP decline 6.3% on an annual basis during the last quarter of 2019.
And with two of the largest exporting nations signaling that they are in deep trouble, economists are concerned about the growth of the global economy. But the U.S. economy in the meantime has strengthened, and eventually supported the greenback.
Dollar was supported by strong domestic housing data that showed a narrower-than-expected fall in U.S. new home construction, while home permits soar to the highest level in 13 years. What’s more, builder confidence continues to remain near an all-time high. After all, mortgage rates recently hit a three-year low, boosting the country’s housing market. Needless to say, lower cost of home financing drove demand among potential buyers.
Talking about the domestic economy, both domestic manufacturing and service activities increased recently, and the labor market continues to be on a solid footing, a tell-tale sign that the economy is doing well despite the eruption of the deadly virus.
According to the Institute of Supply Management, its manufacturing index climbed to 50.9 in January from an upwardly revised 47.8 in December. The index scaled beyond the 50 mark, which separates expansion from contraction. Analysts, by the way, were expecting a reading of 48.5. Strength in new orders, production and employment supported the gains.
The non-manufacturing index came in at 55.5 in January, topping analysts’ estimate of 55. It was also higher than the December reading of 54.9. The non-manufacturing sector, thus, saw uninterrupted expansion for the 120th consecutive month and indicated that the broader economy is on track for steady growth this year.
In the meantime, the U.S. economy has been steadily adding new jobs as Americans continue to return to the labor force. Further, wage growth has improved. According to the Labor Department, the United States added a massive 225,000 jobs last month, way higher than analyst expectations of 160,000 jobs. It was also up from December’s upwardly revised number of 147,000. In addition to December’s positive revision, non-farm payrolls for the month of November increased by 5,000 to 256,000. And that means the economy added an average of 211,000 new jobs in the past three months, a significant rise from last summer.
To top it, Fed’s minutes supported the dollar’s upward movement. Policymakers are cautiously optimistic about holding interest rates steady despite the coronavirus onslaught. It’s worth mentioning that any rate cuts could have compelled investors to sell dollar-denominated assets, eventually weakening the dollar’s exchange rate.
Which Stocks Gain From a Stronger Dollar?
A rising dollar impedes earnings growth, which suggests that returns from the equity market might be subdued. Particularly, companies that derive a majority of their earnings from overseas will suffer. Such companies are exposed to foreign exchange risks between the United States and other countries they are operating in. Thus, if dollar gains strength, it tends to hamper foreign sales of such companies.
Thus, investing in stocks with high domestic exposure in terms of revenue generation seems judicious. After all, such stocks are set to benefit from wider domestic revenue exposure, which insulates them from the effects of a stronger dollar. We have thus picked five such stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Onconova Therapeutics, Inc. ONTX, a clinical-stage biopharmaceutical company, focuses on discovering and developing small molecule product candidates to treat cancer. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 42.3% over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 94.1% and 57.7%, respectively.
Abeona Therapeutics Inc. ABEO develops cell and gene therapies for life-threatening rare genetic diseases. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 2.6% over the past 60 days. The company’s expected earnings growth rate for the current and next quarter is 19.4% and 30.8%, respectively.
Proteostasis Therapeutics, Inc. PTI engages in the discovery and development of various small molecule therapeutics to treat cystic fibrosis (CF) and other diseases caused by dysfunctional protein processing. The company, currently, has a Zacks Rank #2. The Zacks Consensus Estimate for its current year earnings increased 0.8% over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 19.4% and 25.5%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.
Applied Therapeutics, Inc. APLT develops novel products to target cardiovascular disease, galactosemia, and diabetic complications. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 0.3% over the past 60 days. The company’s expected earnings growth rate for the next quarter is 62.7%.
Ennis, Inc. EBF designs, manufactures, and sells business forms and other business products in the United States. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 4.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 4.8%.
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