The U.S. dollar is seeing a historically bad start to a year, and that will prove to benefit the energy and materials sectors, according to a new report from Oppenheimer.
This year is turning into a "bizarro-2015," the firm's head of technical analysis, Ari Wald, wrote in a new note. We are witnessing a "near-mirror-image" of the dollar/commodities relationship that was particularly pronounced three years ago, when the dollar was surging and commodities-centric stocks such as energy and materials took a hit.
Now, as the dollar is set to see its worst January in three decades, the two sectors could be ready to soar. Energy and materials are being supported by a weaker dollar already, as well as seasonality in their favor.
"When weighing the evidence, we are still concerned by what can still be viewed as a more questionable relative trend; we haven't seen the same confirmation versus the market. They haven't been leadership; we like leadership," Wald said Monday on CNBC's "Trading Nation."
Due to this, he recommends buying leadership within energy, like EOG Resources. The stock has recently come out of a multiyear consolidation pattern, Wald said.
On the materials sector front, another driver of strength could be plans for further infrastructure spending. The Trump administration is set to unveil a $1.5 trillion infrastructure plan on Tuesday evening during Trump's State of the Union address.
Meanwhile, it would be prudent to be selective when it comes to individual names within the energy sector, said Stacey Gilbert, head of derivative strategy at Susquehanna.
"On the oil services side, we'd look more for those that have U.S. land exposure, as well as international exposure," Gilbert said Monday on "Trading Nation."
Energy stocks were dragged down in Tuesday trading as crude oil was on pace for its worst one-day drop since early December. One popular materials-tracking exchange-traded fund, the XLB, was down nearly 1 percent and on pace for its third straight session of losses.
