Higher Rates Could 'Wreak Havoc' on Rally: Strategist

Stocks have been held hostage by the dollar over the past few months. Can the market break that relationship? Nick Kalivas, vice president of financial research at MF Global, and Jim Lacamp, portfolio manager and advisor at Macro Portfolio Advisors, discussed their ideas.

“When the dollar’s in a freefall, we really have to worry about it and if it strengthens too much, we need to worry about it,” Lacamp told CNBC.

“The dollar’s now sort of meandering and I think we’ll see a trading range in the dollar.”

Lacamp said commodities have decoupled from the dollar in the last few weeks and are looking positive.

“It doesn’t matter whether you like [commodities] for global growth or global currency destruction,” he said. “You have to like the commodities moving forward.”

Regarding the relationship between the dollar and interest rates, Lacamp said the Fed is playing an “unbelievable game of chicken.” He said the U.S. is relying upon China and the banks to buy up the debt in order to keep domestic interest rates low.

“If we get to a point where we’re too excited about our economic recovery and interest rates start to push up, that’s going to wreak havoc on the stock market rally,” he warned.

In the meantime, Kalivas said the relationship between the dollar and stocks is not strong.

“[This] backdrop is favorable for commodities and stocks,” he said. “If you look globally, PMIs* are up and interest rates are low…So that’s going to create some interest in commodities and stocks.”

Kalivas Likes:

S&P Health Care

S&P Utilities

S&P Technology

Lacamp Likes:

Caterpillar

Bucyrus International

Joy Global

* Purchasing Manager Index figures from the Institute of Supply management (ISM).

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Disclosures:

No immediate information was available for Kalivas or Lacamp.

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