How the Dow Pulled Europe Higher Today


With just an hour and a half left in the trading day, it looks likely that stock markets in the U.S. will finally break their six-day losing streak. With the Dow Jones Industrials (INDEX: ^DJI) up more than 170 points just after 2 p.m. EDT due to a better-than-expected response to China's latest GDP figures, it would take a big turnaround to extend that streak now.

In Europe, though, the jury's already in, and stocks there closed broadly higher. Although European markets were already somewhat higher based on China's news, the gains accelerated sharply when the U.S. markets opened. By the close, the FTSE 100 (INDEX: ^FTSE) finished up more than 1%, while the French CAC 40 was up almost 1.5% and the German DAX led the group, rising more than 2%.

Even with today's gains, European stocks face plenty of uncertainty right now. Spain, for instance, continues to labor under high unemployment, and its banking system is under serious threat. Although banking stalwart Banco Santander (NYS: SAN) has international operations that should help it stem the tide of problems, smaller local banks will face much bigger challenges.

But arguably, investors are getting well compensated at present for those risks. Even telecom stocks France Telecom (NYS: FTE) and Telefonica (NYS: TEF) have gotten beaten down lately, despite their having fairly solid businesses behind them. Sure, a slowdown in Europe will affect the companies' prospects. But at some point, the roughly 50% hits that both of these stocks have suffered starts to look overblown, and with earnings multiples well below 10 based on trailing earnings, it would take a massive contraction in economic activity to make these stocks look expensive in hindsight.

Europe is a value opportunity waiting to happen. The worst may be yet to come, but at some point, the Continent will recover -- and investors will regret not having taken advantage of the situation while the getting was good.

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Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of France Telecom. Motley Fool newsletter services have recommended buying shares of France Telecom. 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 Fool has a disclosure policy.

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