Stocks may continue to tumble because of the credit crunch. But investors should continue to hold large-company stocks with little debt and strong overseas sales. By Thomas M. Anderson, Contributing Editor August 10, 2007 After a week of hyperventilating, take a deep breath. Despite the year's second-worst day of trading on August 9, the Dow Jones industrials, Standard & Poor's 500-stock index and the Nasdaq all ended the week slightly higher than where they began. The volatility may point to a correction, but the bears won't feast for long. Hedge funds sparked the most recent bout of volatility. Jittery investors made a run on these funds, which prompted fund managers to sell highly leveraged assets to generate cash to pay redemptions. Such transactions rippled through the capital markets. That caused central banks worldwide to inject billions into the markets to keep them liquid. But because hedge funds are loosely regulated investment pools, no one has a clear idea of how exposed these funds are to subprime mortgages. These hedge funds operate in darkness, so their unknown holdings and practices mask the extent of the supposed credit crunch. Many of these opaque funds own packaged investments whose value is affected by their exposure to subprime mortgages. Rising loan delinquencies and home foreclosures cause declines in the values of these securities, which force some of the worst-positioned hedge funds to sell higher-quality investments to remain solvent. There's no way to know how much and what lands on the sell desks. "The potential for hedge funds selling to meet redemptions is the biggest unknown in the markets," says Tobias Levkovich, Citigroup's normally bullish economist. He suspects that there will be more churning of stock portfolios and fear that it will continue to harm stock prices. The last week of July was in fact the second-worst in four years for hedge funds worldwide, with a loss of 3%, according to the Hedge Fund Research index. Advertisement Another question is whether there is enough money around for banks and other lenders to make good on previous commitments, such as already-announced mergers and takeovers. Central banks appear aware that credit is tight and appear to have a handle on it for now. "Ben Bernanke is very likely on top of the situation, and we think that the only question is timing in terms of the real rate relief that is surely coming down the pike," says David Rosenberg, Merrill Lynch economist. However, the decline of the U.S. housing market and resultant credit crunch pose real threats to parts of the economy, especially some financial firms. But global growth will trump these problems over the next several months. That's why shares of U.S. companies with strong overseas exposure still make sense. One that fits the bill is General Electric (symbol GE, $38.23). Demand from rapidly developing countries, such as China and India, for more roads, electricity and water will fuel the company's growth in infrastructure development, energy equipment and heavy construction. Companies with dependable streams of revenue also make sense when there are questions about credit. Comcast (CMCSA, $25.44) has increased its sales by bundling its phone, cable and Internet services while offering more premium options.