NEW YORK Nov 8 Cutbacks and signs of economic slowness in Europe are likely to hit U.S. sales, and automobiles and other "deeply cyclical" industries may be the most impacted, according to a Citigroup research note.
The softness, however, may not yet be priced into shares, Tobias Levkovich, Citigroup's chief U.S. equity strategist, said in the note. In addition to automobiles, he said materials and capital goods are among the industries likely to be most affected, and also mentioned consumer durables and apparel as well as consumer services.
Foreign sales account for some 30 percent of Standard & Poor's 500 .SPX sales, and European sales account for 10 percent of that, Levkovich said.
"In light of cutbacks in government spending, tax increases and waning business confidence, there already has been some commentary on slipping appliances, bearings and heavy-duty trucks demand," Levkovich wrote.
Europe's debt crisis has plagued markets for months, but U.S. stocks bounced back in October as some plans emerged by European leaders to try to contain the crisis. On Tuesday, U.S. stocks rose on news that Italian Prime Minister Silvio Berlusconi would resign after a new budget law is approved.
The S&P consumer discretionary sector .GSPD , which includes autos, is up 5.5 percent for the year, while the S&P 500 as a whole is up 1.3 percent for the year.
More defensive U.S. sectors are vulnerable as well, including those in food, beverage and tobacco; pharmaceuticals and biotechnology; and household and personal products groups, according to the note.
Among S&P companies with the biggest sales exposure: Coca-Cola Enterprises (CCE.N), Newmont Mining (NEM.N), Philip Morris International (PM.N), First Solar (FSLR.O), Harman International (HAR.N) and Flowserve Corp (FLS.N), according to the note.
Although U.S. third-quarter earnings have been coming in above forecasts, analysts have cut their forecasts for the fourth quarter and for the first quarter of 2012, according to Thomson Reuters data. (Reporting by Caroline Valetkevitch; Editing by Leslie Adler)
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