What Would Europe Slowdown Really Mean for US Stocks?

What will a European slowdown mean for U.S. stocks? That's the big debate on trading desks today.

Those who are bullish on U.S. equities argue: not as much as you might think. Why not? The top four destinations for our exports are Canada, Mexico, China and Japan — in that order. Notice Europe is not on the list.

But that is not comforting the market right now.

The market is acting like it is not sure what the endgame of this slow-motion euro wreck will be on global stocks (Caterpillar , etc.), so they are taking it on the chin.

How safe are earning estimates with a weak euro? Top-down strategists estimate that the S&P 500 will earn $83.25 in 2010. These estimates have gone UP about 4 percent in the last month. They have gone UP because the outlook for U.S. growth seems better than overseas growth: U.S. GDP expected up 3 percent in 2010, eurozone only 1 to 1.5 percent.

As a rule, about half of all sales of U.S. companies occur overseas.

One problem with the data is that many companies do not provide data on geographic sales. Still, Cort Gwon at FBN Securities note that of those that do report regional numbers, many have significant exposure to Europe:

U.S. companies with significant exposure to Europe:
(percent of sales)

First Solar 76 percent

Owens Illinois 41 percent

McDonald's 41 percent

Illinois Tool Works 39 percent

Carnival 39 percent

Source: FBN/Bloomberg

Even here, though, damage appears limited. Of those listed above, only First Solar and Owens Illinois have underperformed the S&P 500 in the last month.

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