The recent weakening of the U.S. dollar, which has fallen 7 percent this year against a basket of foreign currencies, could benefit some sectors more than others.
The consumer discretionary sector might stand to benefit the most from the dollar drop, according to Erin Gibbs, portfolio manager at S&P Global.
The sector "has an average exposure to foreign revenues, but it has some of the best outlook when it comes to actual earnings growth and a lot less overhang, either from Washington or interest groups," Gibbs said Tuesday on CNBC's "Trading Nation." "So that might be your one safe bet when it comes to a dollar play," as well as the group's fundamentals on their own.
A weaker dollar relative to foreign currencies is typically a positive factor for companies that do much of their business abroad. The greenback has fallen against most major currencies this year as the perceived likelihood of further interest rate hikes this year has also decreased.
On Tuesday, the dollar index (which measures the value against a basket of foreign currencies primarily composed of the euro) hit a 10-month low.
The health-care, energy, utilities and real estate sectors in the S&P 500 have relatively low exposure to foreign revenue and, by extension, little exposure to exchange rates, Gibbs pointed out.
"Unfortunately, none of them are really stellar sectors. Utilities and real estate have heavy industry exposures; they've also got negative earnings growth for this year. So even if the dollar does better, it's still not looking great," Gibbs said.
Health care, too, is surrounded by a great deal of political uncertainty. This week, another attempt by Republicans in Congress to repeal and potentially replace Obama-era health-care policy failed.
Health care and consumer discretionary are the second- and third-best performing S&P 500 sectors this year, respectively. Energy is the second-worst performing sector year to date.
Energy stocks could ultimately benefit most from the greenback's slide, which is likely to continue from here, said Piper Jaffray chief market technician Craig Johnson. A weaker dollar relative to foreign currencies typically boosts crude oil prices, and thus the energy stocks to which they are closely tethered.
"The dollar has been consolidating since 2015. We've been selling off over the last several months in here; we've got good support that comes in around 92 to 94, but from my perspective we're going to see more backing and filling here with this dollar," Johnson said Tuesday on "Trading Nation."
The dollar is being weighed down by a slowdown of some the planned pro-growth agenda in Washington, Johnson said, and a weaker dollar will "continue to be a benefit for large-cap stocks as we've been seeing large-cap stocks outperform mid-small-cap stocks by over 600 basis points so far this year."
The U.S. dollar index was slightly higher in Wednesday trading.
