JPMorgan strategists anticipate that the dollar will remain strong in the next 3-6 months, driven by factors such as U.S. exceptionalism and wide interest rate differentials.
As the dollar is expected to continue strengthening, the strategists reiterate their preference for defensive and energy stocks.
“Almost always in the past, when USD is strengthening, global equities have been under pressure,” the analysts wrote in a note.
A stronger dollar typically implies outperformance for countries with large export exposures, such as Japan, Switzerland, and the UK, in their respective local currencies.
Commodities usually exhibit an inverse correlation with the dollar, but supply constraints, geopolitics, and low inventories should support energy stocks, the strategists added.
“We continue advising a barbell of commodities - OW Energy - together with a low beta exposure, such as Staples and Utilities, and that could track even if bond yields keep going higher in the near term.”
“European Healthcare could be interesting, as well, as it tended to work well with strong USD,” the analysts concluded.