The Dow Has Ridden U.S. Strength Higher, but Will Europe Bring the Bull Market Down?

While the U.S. economy looks increasingly strong, Europe is still in a heap of trouble.

Jun 24, 2014 at 1:30PM

Judging by the minimal moves in the Dow Jones Industrial Average (DJINDICES:^DJI) today, it's no surprise that Tuesday has been a relatively quiet day for the global markets generally. Given the strength in the U.S. economy, having the Dow near record highs is consistent with the overall mood of the market. Yet even as the FTSE 100 (FTSEINDICES:^FTSE) and Germany's DAX (DAXINDICES:^DAX) are near their own all-time record highs, signs of difficulty in the European economy could eventually weigh on international investors -- as well as Boeing (NYSE:BA), Ford (NYSE:F), and other U.S. multinationals that have a substantial presence on the continent.

Ford Genk Sign
Source: Ford.

How's the European economy faring?
Most of the attention that Europe has gotten recently has centered on merger and acquisition activity, as many U.S. companies have sought European acquisition targets in order to take advantage of favorable international tax laws. When you look more closely at the European economy, though, you'll see that it hasn't been as successful as the U.S. economy in recovering from the financial crisis.


Source: Wikimedia Commons.

So far this week, economic data hasn't been kind to the eurozone. Yesterday, a key index of purchasing managers' activity proved weaker than expected, dropping for the second month in a row and raising concerns that the fragile recovery could be in danger. Specifically, Germany has done fairly well in fostering growth, but France continues to see recessionary conditions. Even in Germany, though, companies are uncertain about their futures, with this morning's release of business-climate perceptions showing a drop from last month and signaling companies' pessimism about their immediate prospects.

From a policy standpoint, economic weakness has put central banks on the offensive. The Bank of England's chief argued that U.K. employment conditions aren't strong enough to justify raising interest rates, pulling back on more hawkish sentiment from the recent past. Meanwhile, the European Central Bank has suggested that interest rates could stay low through the end of 2016 -- much longer than most investors expect from the Federal Reserve and its future plans for U.S. monetary policy.

Why Europe matters
Dow Jones Industrials investors might wonder how Europe really affects them. After all, many foreign investors have put money into the U.S. market to avoid such problems, thereby arguably supporting the Dow's gains.

Yet the global nature of both the 30 Dow components and other large multinationals makes them vulnerable to a greater or lesser degree to European weakness. Boeing doesn't have the home-field advantage that rival Airbus has in Europe, but it nevertheless makes substantial sales to airlines in the eurozone. Poor economic conditions could lead to reduced aircraft demand. Similarly, Ford has worked hard to turn its struggling European operations around for years, and it has had reasonable success in cutting losses there. But if buyers in Europe can't afford new vehicles, then it could send the automaker's European operations lower as well.

The Dow Jones Industrials can benefit from weakness in other markets under certain conditions. But the stock market is truly global now, and so in the long run, the Dow will do better if it has a strong European economy that its component companies can use to find profit opportunities across the Atlantic.

You can't afford to miss this
"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW and others. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made In China" for good. Click here!

Dan Caplinger owns shares of Ford. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information