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Global Economies: Is the U.S. Still the Best House on a Bad Block?

August 18, 2015
Is the U.S. the best house in a bad block of global economies?

Eurozone growth was weaker than expected in Q2, heightening concerns about the region’s recovery and adding to the big-picture considerations for a U.S. Federal Reserve that’s considering taking up interest rate policy next month under mounting pressure.

As for traders, their key consideration may be just who has the stronger economy right now.

"The economic data confirms the U.S. is still the best house on a bad block," says Sam Stovall, chief equity strategist at S&P Capital IQ.

"With U.S. economic growth at 2.3%, it’s still a half-speed growth rate when compared to longer-term averages,” he says. “Europe's growth is relatively anemic, but better than still being in recession.”

More Than a Coat of Paint?

As reported Friday, gross domestic product (GDP) growth in the eurozone slipped to 0.3% in Q2, missing the 0.4% that industry economists expected and marking a slowdown from the 0.4% logged in Q1. Economists were expecting at least a steady clip of growth following an aggressive bond-buying stimulus program from the European Central Bank launched in March.

Barclays downgraded its 2015 eurozone GDP outlook to a 1.3% year-over-year pace in the wake of the Q2 report.

The “bad block” of economies covers much of the globe. Europe and Japan continue to struggle; both of their central banks are still in easing mode. The U.S. remains the only advanced central bank in this group that’s expected to hike monetary policy rates in late 2015 or early 2016.

From All Angles

Traders looking for ways to play the economic differential might explore U.S. multinational stocks that offer domestic and international exposure farther afield than a single region (figure 1), says JJ Kinahan, chief market strategist at TD Ameritrade.

"U.S. multinational stocks offer some exposure to many countries without potentially risky overexposure to Europe," Kinahan says. "For instance, General Motors [GM] has less than 1% exposure to Europe, while having 47% of its revenues exposed to China.”

The U.S. economy is a fixer-upper, too, but for now it’s still the leader of the economic giants—and may be for some time.

Drill down into a company's profile to review its multinational exposure

FIGURE 1: MULTINATIONAL MAKEUP. TD Ameritrade clients can drill down on U.S. multinational companies to determine their exposure to different foreign companies based on revenue breakdown. Use the company profile tool available on the thinkorswim® platform to view these details. Log in to your TD Ameritrade account, then go to Trade Tab > All Products > Company Profile (look for the button toward the top right corner of the screen). Chart source: TD Ameritrade’s thinkorswim® platform. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

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