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Why the U.S. dollar will continue to be weak for the foreseeable future

Yahoo Finance’s Myles Udland, Julie Hyman, and Brian Sozzi discuss how investors should be managing their portfolios amid COVID-19 with Patrick Fruzzetti, Managing Director and Senior Research Analyst at The Rosenau Group of Hightower Advisories.

Video Transcript

JULIE HYMAN: So let's talk about what you, the individual investor, should be doing with their money going into the end of the year. Joining us is Patrick Fruzzetti. He is Managing Director and Senior Research Analyst at the Rosenau Group at Hightower Advisories. He's joining us as part of our FA Corner. And so Patrick, as you look at the landscape here, what are you hearing from clients? What is sort of their top worry as we head into the end of the year and going into 2021?

PATRICK FRUZZETTI: Well, look, the biggest thing is that there's still some political risk out there, right. You know, we have a Georgia runoff, and it's obviously going to be a meaningful election, because it determines whether potentially there is a blue sweep. And that could have an impact on taxes, and could have a broader impact on the market.

MYLES UDLAND: You know Patrick, right now, a lot of the guests that we're talking to are discussing the rotation trade, right, the move into value, into cyclicals, out of growth. What's your view on this, and how much does that rotation or trade matter for someone thinking longer term about where their financial health is at?

PATRICK FRUZZETTI: Yeah, sure, so look a rotation is certainly developed. Value has outperformed their growth brethren of late after underperformance this year and even longer than that. And it's on the hopefulness of the vaccine, which we hope all comes to fruition and helps us to reopen the economy. But I think it's a little bit more broader than that, which is why I think it's really a trend and not just a trade. You know, I think you really have to look to the weaker US dollar, which we think for the foreseeable future will continue to be weak.

And when I say a weak dollar, I mean relative to the Chinese renminbi, right, because China at the end of the day is still one of the most important, efficient, manufacturers out there. And a weak renminbi would make China much more competitive, because it applies deflationary pressure around the world. But the renminbi has been in one of their strongest periods in over a decade. It's been such a sharp move. And so a stronger Renminbi really makes global manufacturers-- allows their margins to expand a bit.

I mean, you were speaking to Jim Weber, Brooks Running CEO, earlier, and that would certainly help his margins, I think. And so at the end of the day, a weak renminbi would be good for bonds and a strong renminbi, I think, is good for cyclicals and good for value stocks. At the end of the day, there's a mean reversion in the market. And I think where we're continued on that path.

BRIAN SOZZI: What would it be good, Patrick, certainly is higher corporate taxes. And you had President-elect Biden in a New York Times interview this week say, he's open to bringing back the corporate tax rate to 39.6%. Should that happen within the next two years? How do you think the market will deal with that?

PATRICK FRUZZETTI: Yeah, I know, it's a great question. I appreciate that. As I mentioned, this Georgia runoff election is important, because I don't think the market's discounting a blue sweep. And if corporate taxes go up, I think based on Biden's plan most estimates for earnings per share are a negative impact, just next year, of 9% or 10%. And so that's obviously a significant impact.

Not to mention, I think the broader effect is you could have significant stimulus, which could potentially allow the Fed to lose control of the bond market. And I think that could also then spillover to the equity market. So there would certainly be potential volatility under those scenarios.

JULIE HYMAN: Definitely some minds to watch out for. Patrick Rossetti, thank you so much, Managing Director, Senior Research Analyst, at the Rosenau Group at Hightower Advisories. He was joining us as part of our FA Corner sponsored by PIMCO. Thanks so much, Patrick.

PATRICK FRUZZETTI: Thank you.