Many money managers remain bullish on big stocks and on tech issues. A survey last month of nearly 300 investment managers by Russell Investments of Tacoma, Wash., showed 78% were optimistic about tech, a record high for the survey, which is conducted quarterly.
* Foreign stocks. Overseas markets generally trounced the U.S. stock market in 2007, continuing the trend of the last few years.
The bet: There's enough momentum in booming foreign economies -- particularly emerging markets -- to keep those stocks moving up, despite America's troubles. In a major turnabout, historically, some investors now see emerging markets as less risky than the U.S. market.
A Merrill Lynch & Co. survey of global fund managers in November showed that most "continued to stand by an investment strategy centered on the idea that the rest of the world can decouple from the U.S. sub-prime crisis," Merrill said.
Most Asian markets were global stars in 2007 as China's economy continued to zoom. The Shanghai composite stock index surged 97% for the year. The Sensex index in India jumped 47% and South Korea's main index rallied 32%.
Japan was odd man out, as its economy remained sluggish. The Nikkei-225 stock index fell 11.1% for the year.
Stocks performed better in Europe than in Japan, but the global credit crunch took a toll on European investors' confidence. The French market was up just 1.3% for the year in euros; the Swiss market dipped 3.4% in francs.
For U.S. investors, however, the weak dollar boosted stock returns in Europe and elsewhere. The French market was up 12.1% for the year in dollars. The Swiss market gained 4% in dollars.
Bullishness about foreign economic growth, especially in emerging markets, also has driven the rally in prices of many commodities over the last few years. Crude oil ended Monday at $95.98 a barrel, down 2 cents for the day but up $34.93, or 57%, for the year.
But with expectations high for foreign stocks and their economies, a growth slowdown overseas in 2008 would leave foreign markets vulnerable to a sell-off, analysts warn.
"It's crazy to assume that emerging markets won't be affected by a U.S. slowdown," said Byron Wien, chief investment strategist at Pequot Ventures in Westport, Conn.
"But they won't be destroyed," he said, and on balance, "I think foreign will do better than the U.S." in 2008.
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(BEGIN TEXT OF INFOBOX)
WHAT WAS HOT
BIG-NAME U.S. STOCKS
Why: Safer harbors in a stormy market
What: McDonald's, +33%; Microsoft, +19%
EMERGING-MARKET STOCKS
Why: Zooming economies, rising wealth
What: India, +47%; Brazil, +44%
COMMODITIES
Why: Strong global demand
What: Wheat, +77%; gold, +31%
TREASURY BONDS
Why: Risk aversion
What: Vanguard Long-Term Treasury fund, +9.2%
(BEGIN TEXT OF INFOBOX)
WHAT WAS NOT
ANYTHING HOUSING-RELATED
Why: Sub-prime debacle
What: Countrywide Financial, -79%; Home Depot, -33%
SMALL-COMPANY U.S. STOCKS
Why: Fear of economic
slowdown
What: Russell 2,000 index, -2.8%
JAPANESE STOCKS
Why: Perennially sluggish economy
What: Nikkei 225 index, -11.1%
JUNK BONDS
Why: Fear of rising defaults
What: Vanguard High-Yield Corporate fund, +2.0%
