Why the US banking crisis is like winter in Europe

Ken Fisher

Business

By Ken Fisher

March 26, 2023 | 1:14pm

Remember those black clouds hanging over Europe last fall? Terrifying warnings of natural gas shortages, death-inducing winter blackouts, war spreading westward, endless stagflation – and, of course, recession.

It never happened.

Instead, Eurozone stocks have soared by nearly a third since September’s low.

French, Italian and Spanish markets all set all-time highs in euros in early March. UK stocks did in pounds two weeks prior.

Many US investors – preoccupied with the spectacle of a historic banking crisis in recent weeks – have failed to notice this expectation-defying flip.

But it’s how markets work – and it’s a bullish signal for the US.

Dismal as Americans felt last year, Europeans felt far worse.

Sentix’s eurozone expectations gauge stagnated to its lowest since 2008’s financial crisis.

Commentators routinely predicted a eurozone recession was near certain.

The UK’s Office for Budget Responsibility claimed Britain likely had begun a multiyear downturn.

The Bank of England forecast the worst UK recession since the 1930s.

At June’s peak, galloping US prices trailed the eurozone’s 10.6% October inflation surge and the UK’s 11.1%. Italy hit 12.6% and the Netherlands 17.1%. 

Germany, traditionally dependent on Russian natural gas imports from Nord Stream pipelines, feared supporting Ukraine lest Putin turn out the lights.

What happened next? Natural gas storage filled fast as supply chains reshuffled.

New plants and pipelines, including the Baltic Pipe project bringing Norwegian gas southward, came online.

Mild weather helped. Coal filled in some gaps. Fears that Russia would march farther west faded as its military blundered endlessly.

Now, we have neither perfection nor resolution (mind you, we never will). Recession? Pockets of weakness exist. Maybe Germany, which contracted by an annualized 1.7% in the fourth quarter, faces a mild recession.

But overall, eurozone GDP was flat in Q4, shrinking a mere 0.1% annualized.

Even in Britain, the OBR now sees it avoiding recession altogether, with a mild 0.2% contraction possible this year versus prior ugliness.

Flattish growth isn’t great — yet stocks love it. Why? As I often say, stocks move on the gap between expectations and future realities.

When most expect deep recession, tiny growth — or even slight contraction — is hugely bullish.

Early European fears explain its bounce since autumn — and the S&P 500’s lagging 10.4% return since its October low.

Remember: Big trends are global, not local, always. Especially now, as bank contagion fears gallop.

I detailed on March 15 why those worries are overblown. Credit Suisse? It has been trying to die for 15 years.

Yet 2008-style banking crisis talk pervades. It won’t take much to top bludgeoned expectations.

Selling now makes the same mistake as those who sold European stocks last fall — suffering some downside then missing out on a huge rebound.

Amid hyperbolic banking headlines, ask yourself one question: Will things be better or worse than expected from here?

If they end up even a smidge better than today’s bank battered forecasts, the bull market runs on.

Ken Fisher is the founder and executive chairman of Fisher Investments, a four-time New York Times bestselling author, and regular columnist in 17 countries globally.