As the European Union scrambles to manage its spreading credit crisis, certain segments of the U.S. equity markets could start to stand out, according to money managers and market watchers.
“The investment opportunity now is clearly favoring U.S. companies, and we would favor large-cap stocks,” said Quincy Krosby, a market strategist at Prudential Financial Inc.
She acknowledged that the full impact on U.S. companies of the continuing European debt problems won't be known until after a couple of quarterly earnings reports. “But we know that U.S. companies right now are well-run and they can act a lot more quickly than can European companies,” she said.
From an earnings perspective, it is estimated that the S&P 500 has about 9% exposure to Europe, which reflects the multinational nature of many of the larger companies.
Matt Lloyd, chief investment strategist at Advisors Asset Management Inc., said the kind of market turmoil seen this week, when the broad indexes fell by nearly 4% in one day, “sets up an intriguing buying opportunity.”
“I would be looking at large-cap dividend payers, as well as small-caps with less international exposure,” he said.
Further, he added, if the U.S. consumer increases or even maintains the current pace of spending, there could be new opportunities to invest in China and the emerging markets.
Mr. Lloyd said he generally would avoid Europe. “But if we see a pullback by the euro, that could be a buying opportunity for German equities,” he said.
Most market watchers agree that the fundamentals of the U.S. economy are strong but still vulnerable to volatility as the European debt crisis continues.
“If you look at all the data on the U.S. economy, it's not great, but it also doesn't look like we're going into a recession,” said Stephen Wood, chief market strategist at Russell Investments.
The fact that the American economy is expected to grow next year at a rate of between 1% and 2% illustrates how vulnerable the U.S. is any kind of macroeconomic turmoil, such as the eurozone debt crisis.
Still, the good news here is that the expectations are for positive growth.
“In Europe right now, we're pretty cautiously invested, and we've gotten more cautious in terms of our cyclical exposure,” such as industrials and energy sector stocks, said Greg Heilman, portfolio manager at Ave Maria Mutual Funds.
Taking a cautious approach to Europe might be the smart strategy, but it doesn't always help investors sleep well at night, according to Thomas Meyer, chief executive of Meyer
Capital Group, a $560 million advisory firm.
“Welcome to the global economy. It's driving individual investors to insanity,” he said. “We need to buckle up and get used to it, because our fundamentals here in the U.S. are better than Europe's, but that clock is ticking.”
