Remember those black clouds hanging over Europe last fall? Terrible warnings of natural gas shortages, deadly winter blackouts, war spreading westward, limitless stagflation – and in fact, recession.
It never happened.
As a substitute, stocks in the euro zone rose by almost a 3rd from their September low.
In early March, the French, Italian and Spanish markets set record values for the euro. UK stocks were in kilos two weeks earlier.
Many US investors – engrossed in the spectacle of the historic banking crisis in recent weeks – didn’t notice this defying return.
But that is how markets work – and it is a bullish signal for the US.
As gloomy as Americans felt last 12 months, Europeans felt much worse.
Sentix’s Eurozone expectations metric has hit its lowest level since the 2008 financial crisis.
Commentators routinely predicted that a recession in the Eurozone was almost certain.
The UK’s Office of Fiscal Responsibility said the UK had likely began a multi-year downturn.
The Bank of England is forecasting the worst UK recession since the Nineteen Thirties.
At the peak in June, soaring prices in the US followed October’s rise in inflation in the Eurozone, which amounted to 10.6% and 11.1% in the previous month. in the UK. Italy reached 12.6% and the Netherlands 17.1%.
Germany, traditionally depending on imports of Russian natural gas from the Nord Stream pipelines, feared Ukraine’s support lest Putin turn off the light.
What happened next? Natural gas storage facilities filled up quickly as supply chains reshuffled.
Latest power plants and pipelines have been launched, including the Baltic Pipe project, which supplies Norwegian gas to the south.
The mild weather helped. Coal filled a few of the gaps. Fears that Russia would march further west were dispelled as her army made limitless blunders.
Now we now have neither perfection nor decisiveness (remember, we never will). Recession? There are pockets of weakness. Perhaps Germany, which shrank by 1.7% year-on-year in the fourth quarter, will face a gentle recession.
Overall, nevertheless, euro area GDP was flat in the fourth quarter, declining by just 0.1% yoy.
Even in the UK, the OBR now sees it avoid a recession entirely, with a possible mild 0.2% drop this 12 months from the ugliness of earlier.
Flat growth is not great – but stocks find it irresistible. Why? As I often say, stocks move in the gap between expectations and future realities.
When most expect a deep recession, a modest increase – or perhaps a slight decrease – is extremely optimistic.
Early European concerns explain its rebound since the fall – with the S&P 500 lagging behind a ten.4% return from its low in October.
Remember: big trends are at all times global, not local. Especially now that the banking plague fears galloping.
On March 15, I explained why these fears are exaggerated. Credit Suisse? He’s been attempting to die for 15 years.
Yet there is still talk of a 2008-style banking crisis. It doesn’t take much to satisfy expectations.
The vendor is now making the same mistake as those that sold European equities last fall – taking some losses after which missing out on an enormous bounce.
Amid the hyperbolic bank headlines, ask yourself one query: will things be higher or worse than expected from here?
In the event that they end up even barely higher than today’s bank forecasts, the bull market will proceed.
Ken Fisher is the four-time founder and executive chairman of Fisher Investments Latest York Times best-selling writer and regular columnist in 17 countries around the world.