Personal Wealth Management / Expert Commentary

Fisher Investments Reviews How a UK or Eurozone Recession Could Impact Global Markets

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher discusses how a UK or eurozone recession could affect markets. According to Ken, these are two separate issues. While Ken acknowledges the UK is a large economy, he says a recession in any country that size, or smaller, can happen for idiosyncratic reasons that don't affect the broader economy. However, if the entire eurozone—one of three big economic blocs in the world—dipped into recession, he thinks the global economy would likely follow.

In Ken’s view, the stock market is a powerful leading economic indicator and typically drops prior to global recessions. While a stock market drop doesn’t always indicate a global recession, such as the bear market in 2022, Ken believes the market would already be pricing in a eurozone recession—and therefore an ensuing global recession—if one was imminent.

Transcript

Ken Fisher:

I'm often asked what a UK or eurozone recession would do to the market. And I'm just going to be a little annoying here. Those are really two separate questions in one. And shouldn't be answered the same way. When we look at a country like Britain. It's not a tiny country, but it's also not a huge country. In a country that sighs on its own can have a recession tied often to governmental stupid stuff. And I'm not speaking singularly about Britain. I'm talking about any country about that size when other countries aren't. And in particularly it can have a moderate recession when the rest of the world is doing okay just by screwing things up.

That has little global impact. On the other hand. When you think about the eurozone as a whole. It's big. It's one of the three big economic blocs in the world. And if the eurozone as a whole. Separate from Britain, an island unto itself, now no longer part of, um, the EU. If the eurozone as a whole went into recession. It would be unlikely that the whole world wasn't going into recession.

Now, let me speak to that. Some part of the world gets weak before another part of the world gets weak. When you go into global recession, always. It's always. Starting and culminating, and there's some months in there. And I don't think you find that surprising. And whether it starts in Europe or starts in America or starts in Asia, and ripples out throughout the world. The fact of the matter is, the stock market is one of the very best predictors of that extent.

There is a very long history that's not perfect if the stock market goes down before a recession, bottoms while you're in the recession and the economy is still getting worse and worse and worse. And no one can see how it possibly is going to get better and start bouncing back up while the economy is still going down, predicting that the economy will turn around and go back up. The stock market is a leading indicator and it's one of the best ones.

You don't predict the stock market by what is happening in the economy. You help predict the economy by what's happening in the stock market. Unless you've got some very more magical long-term view about the economy, and maybe you do. But if you take a year like last year and the year before where the mild bear market that was only a little bigger than the normal concept of a intra bull market correction being down 10% to 20% , but not bigger than 20% .

That bear market was only a little bigger and a little longer than a normal correction and did not have a recession, which is rare for a official bear market to not be followed by a recession. It wasn't. Instead, we got a market bottom in the summer to fall of 2022, depending on where you were, and a bull market that emerged from that and was strong not everywhere, but most countries hit new highs in Britain, hit new highs in Germany, got close to new highs in America. Hit new highs in Italy. And. In that is, predicting the economy getting better.

If we're to have a global recession. I'm just telling you, you'll see the stock market first turn around and go down. The stock market sometimes goes down when you don't have recession. But if you're going to have recession, the stock market goes down first. And so therefore, while any country can get out of sync with the world by doing stupid stuff, particularly the little ones, it's hard for America to get out of sync with the whole world too much because we're so big.

But third world countries? Yes. Smaller countries? Yes. Tiny countries, of course. It's really the direction of the global economy and the stock market that interact well with the stock market as a leading indicator. And so if you have that fear of a UK recession or a country like that singularly, I wouldn't get too carried away by it because that doesn't ripple globally.

If instead it's Eurozone as a whole that's going to link to the world as a whole, but you're going to see the market go down first. I hope this has been a useful education for you, and you can hold on to it and apply it at later times when you're seeing the market fall. And thank you for listening to me today and I hope another time. Hi, this is Ken Fisher. Subscribe to the Fisher Investment YouTube channel. If you like what you've seen, click the bell to be notified as soon as we publish new videos.

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