Wall Street stock pickers get hints from Fed, strong dollar

Thu Oct 29, 2015 7:01pm EDT
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By Rodrigo Campos

NEW YORK (Reuters) - Shares in U.S. industrial companies and exporters may come under pressure through year end as the prospect of an interest rate hike from the Federal Reserve strengthens the dollar and weighs on Corporate America, analysts said.

Consumer stocks, the best performers on the S&P 500 .SPX so far this year, could continue to lead.

With Fed officials making it clear that the central bank is looking to raise rates by year end, the already strong dollar could rise even more as investors shift funds to the United States, taking advantage of rates that are higher than in the euro zone or Japan, where central banks are loosening policy.

The greenback is on track to close October at its highest in more than 12 years against the currencies of the major U.S. trading partners, according to the St. Louis Fed's trade-weighted dollar index. That raises the possibility that companies exposed overseas will see a pinch if exports become pricier.

"You’re going to see a very competitive environment, one which some countries may use currency devaluation as a way to try to enhance their position," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.

"For that reason, we don’t see any near-term letup in the pressure that the dollar is likely going to exert on U.S. exporters."

During the first quarter, while the greenback kept rising sharply, stocks in the industrial, financial, energy and utilities sectors posted negative returns. The best S&P 500 sector performers were healthcare and consumer discretionary names.

Wall Street's recent rebound, however, has been led by these internationally exposed names, in part because they represented a better value for investors. As foreign markets rebounded in October, companies in the top 10 percent in terms of international revenue in the S&P 500 gained 15 percent, according to Bespoke Investment Group, a research firm in Harrison, New York.   Continued...

Traders work on the floor of the New York Stock Exchange shortly before the closing bell, June 29, 2015. REUTERS/Lucas Jackson