The dollar will continue to rise, but it will not be fatal to stocks, Citi says. This is what you should do.

US stocks are likely to start the quarter in positive territory after President Joe Biden launched his $ 2.3 trillion infrastructure plan. Biden described it as a “once-in-a-generation investment in America” ​​in a speech Wednesday. Investors will be watching key economic data closely for the next two days, including a manufacturing report later Thursday and payroll no. agricultural on Friday. when the US and European markets will be closed for the Good Friday holiday.

The US dollar DXY, -0.04% also remains in focus, as its recent rally has sparked concern among equity bulls. However, in our call for the day, Citi strategists argued that US equities may even outperform as the dollar rally continues. Citi FX strategists noted that the benchmark DXY index, which measures the value of the dollar against a basket of currencies, has risen 4% since mid-February and they expected the US dollar’s rally to continue, citing the rapid launch of the COVID-19 vaccine in the US in the short term and greater fiscal stimulus in the medium term. But the bank’s global equity strategists said that didn’t necessarily mean stocks were about to fall, as history may suggest. “A stronger dollar can be a brake on risk assets, although it is not fatal if the global economic recovery continues,” they said. Citi’s three-stage “dollar smile” model shows a rising dollar and a slowing global economy in March 2020 and then a falling dollar and an expanding economy in the second half of last year. They said it was time for stage 3, which would see the dollar rise and the economy expand. Stage 1 saw risk appetite drop as markets registered a global slowdown, with the dollar becoming a safe-haven currency, while stage 2 risk appetite recovered as the outlook improved. economy and the dollar fell. Then the US dollar begins to rise to the right of the smile. The global economic recovery continues with the United States leading the way. Treasury yields rise further as markets contemplate possible Fed rate hikes, “they said. “This strategy is starting to work now,” added the Citi team. Citi’s strategy for stage 3, which they said was happening now, advises investors to be overweight in US and Japanese equities, if the yen is hedged, but underweight in emerging market and UK equities. In terms of sectors, they are overweight industrial, financial and information technology sectors, and overweight consumer staples, materials and communications services. Investors should also consider making a profit from commodities. As the dollar continues to rise, to complete the ‘dollar smile’, it will begin to “become a drag on risky assets,” they said, adding that it was too early to call the next bear market, but that investors should be more careful. The team said it was a “simplistic strategy” based on previous periods in which the dollar rose along with a global economic expansion and pointed to other issues, such as rising bond yields and the turnover that can lead to. mixed messages. “However, our analysis should give a good idea of ​​how investors could integrate a rising US dollar into equity portfolios,” they said. The Chart This chart from LPL Financial shows that April has historically been a great month for stocks, in fact it was the best month in the last 20 years and the second best since 1950. Chief Market Strategist Ryan Detrick said equities they have closed higher in April in 14 of the last 15 years.

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Source: LPL Research, FactSet

US stock futures markets YM00, + 0.03% ES00, + 0.29% YM00, + 0.03% headed higher early Thursday in the wake of Biden’s infrastructure speech. European and Asian stocks were also boosted by the infrastructure spending proposal, with Asian indices posting modest gains overnight and the Stoxx 600 SXXP, + 0.41%, rising 0.4% in early trading. Tech giant Apple AAPL, + 1.88% will use TSLA battery packs, + 5.08% from electric car maker Tesla to store energy from a solar farm in North Carolina, according to a report by The Verge. Chinese electric vehicle makers Nio NIO, + 3.81% and XPeng XPEV, + 7.95% reported big gains in first-quarter deliveries early Thursday. Frontier Group Holdings, the parent of low-cost carrier Frontier Airlines, said its initial public offering will be priced at $ 19 a share, the lower end of its price range. Pharmaceutical company Johnson & Johnson JNJ, -0.40% acknowledged Wednesday that a batch of its COVID-19 vaccine produced by one of its manufacturing partners “did not meet quality standards,” and said it will provide more experts to monitor the production. Miley Cyrus is giving away a total of $ 1 million in stock in association with SQ, + 6.68% Cash App from Square Inc., the singer tweeted on Wednesday. Cannabis exchange-traded funds are benefiting from the news that marijuana is now legal in New York State, with one of them beating the rest. Netflix NFLX, + 1.61% has reached a deal for two sequels to “Knives Out” by director and screenwriter Rian Johnson, and the streaming giant will pay close to $ 450 million, according to reports. Jokes of the day, but they are not. So-called covidiot campers set up tents a few feet from the edge of a crumbling cliff. Need to Know starts early and updates until the opening bell, but sign up here to receive it once in your email box. The e-mailed version will ship at approximately 7:30 am ET. Do you want more for the next day? Sign up for The Barron’s Daily, a morning investor briefing, featuring exclusive commentary from the Barron’s and MarketWatch writers.