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Like the Dollar, Love Domestic Stocks

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The Fed meets next week and 34 percent of portfolio managers surveyed by Bloomberg believe a taper announcement is imminent, up from 16 percent last month. They cite stronger recent economic data like retail sales, GDP and employment. If they're right, reduced dollar supply argues for a long-awaited dollar rally.

Strategist Paul Hickey of www.bespokeinvest.com notes another chart which looks curiously like the Dollar Index: the spread between the performance of domestic-only stocks versus U.S. exporters:

105 companies in the S&P 500 Index sell their goods and services exclusively to U.S. customers (domestics), compared to the other 395 which sell globally (exporters). When the dollar rallies against other currencies, U.S. goods become more expensive to the rest of the world and domestic-only companies outperform. The opposite is true when the dollar falls: exporters tend to sell more so they outperform. We can see this trend by combining the two charts.

As the Fed meets next Tuesday/Wednesday, assessing whether recent economic improvements justify tapering bond purchases will likely drive the discussion. The shift documented by Bloomberg towards sooner-rather-than-later tapering suggests upcoming dollar strength, which in turn should benefit domestic-focused companies.

Paul and his team have generated a list of top-rated U.S. companies selling exclusively to U.S. customers. We call them the "All-Americans" and we share them here.

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