By Sarah Morgan
Bad news out of Europe was once again dragging down the shares of American companies today. But some investing experts suggest the U.S. stock market may be breaking out of its euro-crisis spell.
Although the Dow dropped nearly 400 points today — sparked by a sharp rise in Italian bond yields which left investors worried Italy may need a bailout — there have been signs the U.S. stock market is starting to “decouple,” or move independently from European markets, according to Ed Yardeni, the president and chief investment strategist of Yardeni Research. Last week, “the bad news out of Europe tended to stay in Europe more so than in the past,” Yardeni wrote in a note to investors on Monday. While the MSCI Europe index fell 4%, and indexes in Germany, France and Italy were down 6 and 7%, the S&P 500 was only down 2.5% for the week, and the MSCI Emerging Markets index was nearly flat.
Indeed, some investors see today’s drop as a buying opportunity. Jack Reutemann, the founder and CEO of Research Financial Strategies, points out that what’s currently happening in the markets has “nothing to do with U.S. economic reality, nothing to do with the health of U.S. corporations, and nothing to do with the profits of U.S. corporations.” Third-quarter earnings were strong, and U.S. companies have cut costs, owe very little debt, and are paying attractive dividends, Reutemann says. “Every one of these down days is a buying opportunity for smart investors,” he says. “Over the next two months there could be some issues, but long term there’s nothing better than the U.S. stock market right now,” he says.
But a more pronounced break from Europe may, however, require some kind of resolution to the slow-motion crisis playing in Europe, says Tom Samuels, the managing partner of Palantir Capital. The crisis could also end in a real blow-up, if Germany decides they can’t bail out the entire continent, or citizens of one of the heavily indebted countries firmly rejects the bailout plans, Samuels notes.
To prepare, Samuels recommends developing a short list of great U.S. companies you’d like to buy, and being prepared to snap up shares if a worst-case scenario for Europe makes markets tumble sharply. That list should include “global franchise names” based in the U.S. like Coca-Cola (KO) , Johnson & Johnson (JNJ), Exxon (XOM), or Wal-Mart (WMT), companies that have positive cash flow and don’t need to borrow money to fund their operations, Samuels says.