Those darn technology stocks. Many of the European funds hardest hit last year were growth funds, which look for companies likely to post rapid earnings growth. Like their U.S. cousins, they were heavily invested in tech stocks. First, the U.S. economy is slowing, which could mean a further rise in the euro. A rising euro would boost profits for U.S. investors in European stocks.
Currencies are dreadfully hard to predict.
But you can make a case for a stronger euro simply because of money flows. Throughout most of the 1990s, foreign money flowed to the USA because interest rates on bank deposits here were higher and stock markets were more attractive. The dramatic fall in tech stocks is adding to the U.S. economy's woes. But even though some mutual funds loaded up on them, Europe's economy isn't as heavily salted with tech stocks as the U.S. economy is. Traditionally, Europe gets the plague when the U.S. sneezes.