Two-Minute Market Focus: Europe’s Banks May Signal New International Opportunities

Key Takeaways

• The S&P 500 rose 1.4% over the past 90 days, while international developed stocks fell 2.1% and the Russell 2000 Index declined 3.9%. Commodities remained well bid.
• Bonds returned 0% over the period, a flat result that may be better than expected given inflationary pressure.
• The Deutsche Bank indicator suggests Europe is starting to spring back to life, which could create new opportunities as banks supply more lending capital.

A 90-Day View Shows Commodities Strong and Stocks Diverging

Stretching the time series to 90 days helps cut through the short-term squiggles that can make recent market moves misleading. Over that window, commodity prices continued to be well bid, supported by an elevated international risk premium as conflicts in the Middle East and Eastern Europe show no sign of resolution.

The S&P 500 managed to stay positive through it all, gaining 1.4%. International developed stocks and the Russell 2000 Index, by contrast, fell 2.1% and 3.9%, respectively. The divergence is emblematic of how sensitive these markets can be, particularly when international risk factors come into play.

Bonds Hold Flat Despite Inflation Pressure

Despite the ups and downs in yields and Fed announcements, the bond market returned exactly zero over the past 90 days. That result isn’t necessarily a win, but given the inflationary pressure in the market and the factors working against it, a worse performance was expected.

Deutsche Bank Indicator Points to a Possible European Rebound

The Deutsche Bank indicator rests on a long-held view: Because Europe’s economy is so heavily tied to its banking sector, bank activity can serve as a leading indicator of what may come next. According to the indicator, Europe is starting to spring back to life.

If banks are supplying more lending capital than they were previously, that could have a stimulating effect on the economies they serve. Jones isn’t suggesting a heavy move into international markets, but it’s an opportunity set worth watching after not looking particularly attractive for the past three or four years.

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