Publish date:

Stocks Totally Dig the 80s

The dollar keeps falling and oil keeps rising, but stocks don't care.

The past week has brought scary-looking moves in the dollar and crude oil, but investors don't seem frightened so far.

On Thursday, the per-barrel price of oil closed above $80 for the first time. The historic move came just a day after the dollar fell below 80 for the first time in 15 years.

Those numbers have dour implications, pointing to rising energy prices and weakening consumer purchasing power. But the market was mostly flat Wednesday and rose sharply Thursday. And some observers say that even with the

Federal Reserve

set to cut interest rates at next week's meeting, talk of the falling dollar could be overdone.

Justin Walters, managing partner at Bespoke Investment Group, is among those taking a contrarian view by suggesting that the dollar may be nearing a bottom.

With the Federal Reserve expected to reduce its overnight borrowing rate at least 25 basis points next Tuesday, most expect the dollar will continue to weaken. Lower rates hurt the dollar by reducing the yield on U.S. assets.

But Bespoke's research shows that during Fed easing cycles going back as far as 1970, the dollar typically falls less when it has declined in advance of the Fed easing cycle.

Others believe the dollar could actually be well served by brokerage earnings starting next week, when

Lehman Brothers

(LEH)

and others are due to post numbers. This summer's freeze-up in the credit markets is expected to weigh heavily on the brokers' earnings.

"A modest bounce in the dollar is possible if market volatility picks up," says Ashraf Laidi, chief foreign exchange analyst at CMC Markets U.S.

Volatility can boost the dollar because investors often flee wild markets for the safety of short-term U.S. government bonds. One possible spur to volatility could be a weak report from Lehman or one of its rivals, such as

Goldman

(GS) - Get Report

or

Bear Stearns

(BSC)

.

Meanwhile, stocks in companies that garner most of their revenue overseas continue to look like the best places to ride out the current market turmoil.

Typically, when the economy slows down, strategists recommend classic defensive groups like health care or consumer staples. But industrial stocks like

TheStreet Recommends

Deere

(DE) - Get Report

have been on a roll lately, and technology names -- many which also obtain much of their revenue overseas -- also have recently outperformed.

"You are seeing money rotate into materials and industrials, which are most exposed to these global trends," says Mike Malone, trading analyst at Cowen & Co.

Texas Instruments

(TXN) - Get Report

has outperformed the

S&P 500

this month in spite of Wednesday's middling guidance. Texas Instruments got 87% of its revenue from overseas in 2006, according to research done by Bespoke. Indeed, of the 27 companies that obtained more than 80% of their revenue from overseas in 2006, 10 were in the semiconductor space.

Other tech companies with more than 80% of revenue from overseas sales in 2006 include

Qualcomm

,

Nvidia

(NVDA) - Get Report

and

Intel

(INTC) - Get Report

.

Bespoke recently created the Bespoke International Revenues index to track the performance of the S&P 500 stocks that generate more than half of their revenue from outside the U.S. The index returned 43% from March 2005 through July 2007, while the S&P 500 alone returned 25%.

In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click

here

to send her an email.