Stocks closed at their lowest level in two months on Tuesday, weighed down by a surge in the dollar. The euro lost the most against the dollar, following renewed fears regarding an interest rate hike by the Fed. A stronger dollar also resulted in lower oil prices, leading to losses for energy stocks.
Tuesday’s Plunge
The Dow slumped 1.9%, experiencing its biggest one-day loss in five months in terms of points. The S&P 500 and the NASDAQ both lost 1.7%. The blue-chip index and S&P 500 also sank below their 50-day moving averages, erasing their gains for the year.
However, the NASDAQ managed to protect yearly gains of 2.6%. For the Dow, United Technologies (NYSE:UTX) emerged as the largest decliner. All its other components took losses, with only DuPont (NYSE:DD) emerging unscathed.
Dollar's Surge
The surge in the U.S. dollar was possibly the reason for yesterday’s losses. Renewed fears regarding an interest rate hike was believed to be the primary cause for the dollar’s ascent. Investors anticipated that the Fed will consider a rate hike in the second half of this year as strong jobs data suggested that the labor market is improving.
A stronger U.S. dollar also weighed on oil prices. Key energy stocks, including EOG Resources (NYSE:EOG), Chevron (NYSE:CVX) Exxon Mobil (NYSE:XOM) and Marathon Oil Corp (NYSE:MRO) declined 1.7%, 1%, 1.1% and 1.8%, respectively.
A stronger dollar is expected to hurt U.S. companies on two different counts. Firstly, quarterly results of companies with a large proportion of foreign sales will be affected. Revenues of international divisions will appear lower when they are repatriated in terms of the relatively stronger dollar. Johnson & Johnson (NYSE:JNJ), IBM (NYSE:IBM), Procter & Gamble (NYSE:PG) and Microsoft (NASDAQ:MSFT) are among those who have expressed concerns about how a surging dollar will hit profits.
Additionally, products of foreign companies will become relatively cheaper. This will hit U.S. companies on their home turf as well as in foreign markets. The Hershey Company (NYSE:HSY) has already been affected, with international sales declining. Meanwhile, General Motors (NYSE:GM) and Ford (NYSE:F) will be at a disadvantage against their European competitors both at home and abroad if the dollar continues to rise.
ECB’s Stimulus
This is also because the euro has declined rapidly recently, plunging to a near 12-year low on Tuesday. The euro lost nearly 1.4% against the U.S. dollar to drop to $1.07. The European Central Bank’s (ECB) quantitative easing program was also an important factor behind the euro’s slide. The program has pushed eurozone bond yields to their lowest levels ever.
ECB President Mario Draghi has said the ECB will purchase these bonds even if they have a negative yield. As announced in January, ECB will buy government bonds worth 60 billion euros a month through a quantitative easing program.
Five Survivors
Below we present five stocks which survived the slump, each of which also has a good Zacks Rank.
Hyperion Therapeutics (NASDAQ:HPTX) is a company from the biopharmaceuticals sector. It concentrates on developing therapeutics for orphan diseases in the U.S., Canada and other countries.
Hyperion Therapeutics holds a Zacks Rank #2 (Buy) and gained 9.9% yesterday to close at $32.82. The stocks’ earnings estimates for the current year were revised 4.9% upward over the last 60 days.
Ocwen Financial (NYSE:OCN) is engaged in a variety of businesses related to residential and commercial mortgage servicing, real estate asset management, asset recovery and global outsourcing.
Ocwen Financial holds a Zacks Rank #2 (Strong Buy) and gained 9.3% yesterday to close at $9.50. The stocks’ earnings estimates for the current year have been revised significantly upward over the last 60 days.
Pinnacle Entertainment (NYSE:PNK) is an owner, developer and operator of casinos in the U.S. It is also an operator of related hospitality and entertainment facilities.
Pinnacle Entertainment holds a Zacks Rank #2 (Buy) and gained 6.7% yesterday to close at $33.74. The stocks’ earnings estimates for the current year were revised 5% upward over the last 60 days.
Express (NYSE:EXPR) is a retailer of specialty apparel and accessories, focusing on the U.S. It offers products for both men and women in the 20 to 30 year age group.
Express holds a Zacks Rank #2 (Buy) and gained 6.1% yesterday to close at $14.95. The stocks’ earnings estimates for the current year were revised 4.1% upward over the last 60 days.
SUPERVALU (NYSE:SVU) is one of the leading companies in the US grocery business. The company operates through three retail food store formats -- combination stores, food stores and limited assortment food stores.
SUPERVALU holds a Zacks Rank #2 (Strong Buy) and gained 5.7% yesterday to close at $10.77. The stocks’ earnings estimates for the current year were revised 3% upward over the last 60 days.
It is likely that rate hike fears will dominate market proceedings in the days ahead. However, stocks remain on a strong footing in the longer term and encouraging economic data could boost markets. Retail sales data, scheduled for release on Thursday, will provide valuable insight into growth in terms of consumer demand. For now, adding these stocks to your portfolio would make for a prudent choice.