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Commentary

Finding Stability Amid Europe Woes

These cheap firms with competitive advantages should help investors ride out the latest shock of volatility from Europe.

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News from Europe rattled the markets yet again this week. As expected, Nicolas Sarkozy is packing his bags at the Elysee Palace, and Greece is struggling to put together a government stable enough to implement reforms needed to keep the country in the eurozone. The Morningstar U.S. Index lost more than 3% during the week and is down nearly 2% during the last four weeks. The decline has created some new opportunities for investors, but a fair deal of caution is warranted.

The fall in stock prices is not entirely unwarranted by the shifting fundamentals of the European political landscape. The chances that the eurozone will fall apart in a disorderly fashion have greatly increased from just a few weeks ago. Even if Greece manages to stay in the currency union over the short term, the uncertainty is still creating headwinds for the real economy in Europe.
 Cisco Systems (CSCO)  provided a perfect example earlier this week. The tech giant provided a disappointing outlook, primarily because it is seeing demand from European companies disintegrate as CEOs take a wait-and-see approach on new investment. Until there is more confidence about the future of eurozone, growth on the continent is going to be subpar, and volatility will remain the name of the game.

Bearemy Glaser does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.