European stocks could be the ultimate catch-up trade: Portfolio manager

If the S&P 500 performs well over the next few weeks, European stocks could perform even better, making them an excellent catch-up trade, according to one portfolio manager.

"The markets [in Europe] have kind of suffered over the last six months, so we believe there will be some sort of valuation adjustment on the upside," ‎Stifel Nicolaus' Chad Morganlander said Monday on CNBC's "Trading Nation." "We can look at perhaps even simple business models like consumer staples stocks to get that extra juice in one's portfolio."

Stocks in Europe and the U.S. will have to contend with some significant challenges in the week ahead. Chief among them is Britain's referendum on whether to leave the European Union — though Fed chair Janet Yellen's testimony on Tuesday and Wednesday could also spur some volatility.

Yet the point is that European stocks could have substantially more zing to the upside, as long as events make U.S. stocks rise, he said. Overall, Morganlander sees European markets rising by as much as 3 to 4 percent in the short-term while the S&P 500 could be up 2 percent.

But Oppenheimer technician Ari Wald isn't sold on Europe, and he urges investors to look at the U.S. market instead based on his chart work on the S&P 500.

"We are seeing the technical strength in the U.S. in the S&P 500, we're not seeing that trend elsewhere," said Wald. "The best case is the U.S. keeps the world afloat and I think those overseas equities will start to flatline here, but the risk is that that weakness everywhere else in the globe spreads to the U.S."

In Wald's view, the U.S. market has more potential to outperform other global markets, including Japan's TPX index, which Wald shows is breaking a four-year trend of outperforming the S&P 500.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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