Second-quarter earnings have mostly beating expectations so far, and much of that gain can be tied to growth overseas. For that reason, many analysts believe investors should be looking at big multinational companies with strong foreign business.
"Earnings are going to continue to come in well because these multinational companies have exposure around the globe," Tom Busby, CEO of DTI Partners, told CNBC.com. "We're in new territory. If you look at the worldwide global economy, there's a lot of liquidity out there and that money is chasing these assets."
The Dow Jones Industrial Average closed above 14,000 for the first time before pulling back on Friday, but was moving higher again Monday. The rally was driven, in large part, by blue chips that do business overseas.
McDonald's said June same-store sales in the United States were only up 4.2%. However, same-store sales in Europe jumped 11.1%. Coca-Cola reported strong gains in emerging markets such as India, Turkey and Africa, which overshadowed an expected decline in North America. Johnson & Johnson cited a demand in overseas markets for an increase in second-quarter profit and General Motors said 2Q vehicle sales outside the U.S. hit a record 1.39 million, accounting for about 58% of GM's global sales.
"We have a global economy now," said Randy Bateman, chief investment officer at Huntington Funds. "There's going to be so much demand from India and China. In that whole area, the development of the middle class there is going to be very much like our baby boom generation. As it's working its way, this is going to put big stresses and strains on the supply for goods and services worldwide."
A Pot of Overseas Gold
Many analysts believe global growth will a major driver for the rest of this year and, perhaps, for years to come.
"I believe that the Dow is in the beginning phase of a bull market and will reach 15,200 at some point this year," said Brian Hicks, president of Wealth Daily. "There's a lot of capital investment going into the energy infrastructure. A driver of this bull market is the fact that 80% of the world is just beginning to use oil and natural gas."
Even as Fed Chairman Ben Bernanke this week cut economic growth projections in the U.S. for the remainder of the year, the Chinese government said its economy expanded 11.9%, despite official efforts to slow growth down.
"The U.S. is becoming an ever smaller part of the global economic pie," said Stephen Leeb, president of Leeb Capital Management. "The undeveloped countries are contributing to about half the world's economic product and their growth is about three times that of developed countries. I foresee this becoming more accentuated."
Vinny Catalano, global investment strategist at Blue Marble Research, isn't convinced that a slowdown in the U.S. won't ultimately affect the rest of the world. "The question is whether or not any meaningful contraction in U.S. consumer spending has an effect on emerging markets," said Catalano. "I would make the argument that any presumed decoupling has not been tested. If you get a contraction from the U.S. consumer in a big way, then we will see if foreign economies can handle that."
This week brings more earnings from major corporations and analysts will be looking to see if global themes continue to play out. Merck reported better-than-expected earnings Monday. Also due out are AT&T (Tuesday),Boeing(Wednesday) and Apple (Wednesday).
Wall Street will also hear from big energy players including Exxon Mobil (Thursday), ConocoPhillips (Wednesday)and Chevron (Friday).
So far, about 25% of the S&P 500 companies have reported. Quarterly earnings are up 6.7% from the year-ago period, higher than the forecast of about four and a half percent at the start of earnings season, according to Thomson Financial.
Analysts say understanding how to take advantage of the growth in overseas markets could help build your portfolio.
"You want to stick with companies that benefit from global growth and are away from the U.S. consumer," said Catalano. He likes the iShares S&P Europe 350 Index , an exchange-traded fund that's designed to track at least 70% of European equity market capitalization. "It's been terrific and continues to be terrific," he said.
Catalano also likes the iShares S&P 100 Index , which tracks the larger, more established companies within the S&P 500, and the Technology Select Sector SPDR , which tracks tech companies in the Standard and Poor's 500 Index.
DTI Partners' Busby likes energy stocks, but he advises investors to wait. "I would wait until you got past October 1 and make sure the current trend has a chance to correct, then invest in large cap issues," he said.
Busby recommends ExxonMobil and Chevron , which both report earnings next week. "I think oil is going to 80, if not higher," said Busby. "People have to understand that until we get a substitute that we currently don't have, oil prices are going higher. The stock market has made an incredible run with oil going from $61 to $75 a barrel."
Busby also likes Apple Computer . "I would look to that stock after October for an end of the year run," he said.
Busby does not currently own ExxonMobil, Chevron or Apple.
Leeb likes oil services and materials stocks. He recommends Barrick Gold and oilfield services company Schlumberger , which reported a 47% increase in second-quarter profit Friday as strong demand internationally offset weakness in Canadian operations.
"I see no problem with the international oil patch stocks," said Leeb. "Most of the international drillers and oil service companies are going to be fine."
Leeb owns both Barrick Gold and Schlumberger.
Phyllis Burke Goffney is a news editor at CNBC.com. She can be reached at email@example.com.