Bad news may be good news for international stocks. Europe is struggling with deflationary headwinds and Japan is suffering under the burden of last April’s hike in the consumption tax. Yet, over the past month, both markets are performing on par with the U.S. market. The reason: optimism that weak economies will force the ECB and BOJ to expand monetary easing. Should this happen, both equity markets are likely to benefit. In other words, bad news might be good for Japanese and European stocks.
In short, most of the past five years has been dominated by manic swings in investor behavior: fears of another recession followed by euphoria over central bank action to counteract that danger. To some extent this dynamic is still in play. What has changed is that the cycle is no longer the same in each country.
Sources: BlackRock, Bloomberg
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.