The dollar will weaken and these stocks could outperform, Evercore says

Hopes that the Federal Reserve may be less aggressive in raising borrowing costs than previously feared have quickly rippled across markets over the past week. Stocks rose as bond yields fell. And it abruptly stopped the dollar’s rage.

The DXY dollar index,
which reached a 20-year high above 108.5 in July, is now close to 105.5.

“The risks to dollar dominance could increase,” Evercore says, and investors should position themselves for the advantage that a weaker dollar could bring to certain parts of the equity market.

There are two factors that will weigh on the greenback, one short-term and one long-term, the investment bank calculates.

More immediately, the easing of inflation expectations could allow the Fed to slow the pace of monetary tightening, or even stop. Therefore, interest rate differentials with the other major economies that supported the US currency will ease.

This should also fuel actions in the broader sense. “A pause – or the end of the bullish cycle, known only in hindsight (which investors may have overpriced last week) – has tended to see stocks rise, albeit with high volatility,” he says. Evercore.

Looking further ahead, Evercore warns that US government debt service costs are expected to rise to record highs, influenced by quantitative tightening, “and the secular shift to higher interest rates and ever-growing debt, which in prospect exert pressure on the ‘world reserve currency’. “

So, how to make the most of stocks? Choose those with the greatest exposure to international revenue and for whom a weaker dollar offers a competitive advantage. And it is also good if the growth of the rest of the world improves compared to the United States

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        Source: Evercore ISI
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   Evercore has nicknamed this group the "Dollar Down Dominators" and it can be found in the technology, energy, industrial communications services, consumer staples and consumer discretionary sectors.  Even better if many on the market have bet against them.</p> <p>"The names of these dollar-sensitive sectors with over 70% exposure to overseas revenues and high short interest, which underperformed their peer group in 2022 ... could outperform," Evercore says.</p> <p>For example, Nvidia NVDA<span>,</span>
   with its 84% ​​exposure to overseas revenues and recent stock struggles, it is one of the best choices.
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      <h4 class="wsj-article-caption-content">Source: Evercore ISI</h4>
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   By contrast, stocks in these sectors with less than 30% exposure to foreign revenues, low short interest rates, which have outperformed their peer group since the start of the year - and which Evercore calls "Falling Dollar Falling Angels" - could underperform.  These include Lockheed Martin LMT<span>,</span>
   Devon Energy DVN<span/>
   and Kraft Heinz KHC<span>.</span>
  </p><h6>Markets</h6>

   <p>    S&P 500 futures ES00<span/>
   it slipped 0.5% to 4,100 early Tuesday, returning from nearly two-month highs.  WTI CL Crude Oil Futures<span/>
   it fell 1% to $ 93.07 a barrel ahead of the Organization of the Petroleum Exporting Countries' latest meeting on Wednesday.  Gold GC00<span/>
   was down 0.1% to $ 1,787 an ounce and bitcoin BTCUSD<span/>
   it lost 0.8% to $ 22,841.</p><h6>The buzz</h6> <p>Markets are nervous, with Asian exchanges particularly weak as traders fear that relations between the US and China will deteriorate due to the visit of House Speaker Nancy Pelosi to Taiwan.  Hong Kong HK Hang Seng Index: HSI<span/>
   It fell 2.4% on Tuesday.</p> <p>Pinterest PIN<span/>
   Shares are up 19% after activist investor Elliot Management said he became the group's largest investor.</p> <p>Uber UBER<span/>
   The stock is also up, gaining 13.6% after results revealed the ride-hailing group is positive for cash flow for the first time.</p> <p>The yield difference between 10-year US Treasuries and 3-month bonds has shrunk to just 9 basis points.  A reversal of this spread would be seen as another market confirmation of the recession in the world's largest economy.</p> <p>After the close comes another large batch of corporate earnings, including AMD's Advanced Micro Devices<span>,</span>
   Starbucks SBUX<span>,</span>
   PayPal PYPL<span>,</span>
   Airbnb ABNB<span/>
   and MicroStrategy MSTR<span>.</span>
  </p> <p>US economic data on Tuesday includes JOLTS job openings for June, scheduled for 10am Eastern.</p><h6>The best of the web</h6> <p>  The shift of the Internal Revenue Service to individual retirement accounts causes confusion and rejection.</p> <p>Like war, climate change and energy costs have disrupted the grain market.</p> <p>The law on reducing inflation is anything but.</p> <p>A warmer planet will expose the divisions in the world of work.</p><h6>The graph</h6> <p>Remote working for millions of workers during the COVID-19 pandemic meant fewer visits to coffee shops near offices, Bank of America notes.  And despite the end of lockdowns and other restrictions, polls suggest workers still spend a third of all paid days working from home.  BofA analyzed its own business transaction data and found that: "Although the sales volume of coffee shops has rebounded significantly since the initial freeze in 2020, it has stabilized in recent months and is still below prepandemic levels. highlights the continuous structural change in the nature of work ”.
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        Source: Bank of America
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  <h6>The best tickers</h6> Here are the most active stock market tickers on MarketWatch at 6:00 am Eastern.</p><h6>Random reads</h6> <p>Bitcoin's mega underwater dumpster.</p> <p>Tom Cruise said he liked my dog, so ...</p> <p>Inside the mouse academy in Washington, DC.</p> <p><strong>Need to Know starts early and is updated until the opening bell, but sign up here to get it once in your inbox.  The e-mailed version will be sent around 7:30 am Eastern.</strong>


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