The central banks have had a hard time breaking down the stock markets. Or, what is the same, investors have been slow to trust the warnings of the guardians of monetary policy.
It has taken almost a month and a half for the stock markets to end a week with losses. For example, the Nasdaq closed the first negative of the 2023 financial year on Friday.
Not even the wave of layoffs announced by the big technology companies had managed to make a dent in the spirit of investors, who until now had shown remarkable resilience. The Dow Jones ended last Friday with its worst week since December.
2023 was being a positive year, something unusual in an upward cycle of interest rates and high inflation. In fact, the big world stock markets are still in annual gains.
“We are in a slowdown of the cycle. But the problem in 2022 is that we had no visibility. This year, on the other hand, the picture is clearer. Interest rates in the euro area should remain at 3.2%-3.5%, and in the United States, close to 5% for quite some time”, Kevin Thozet, a member of Carmignac's investment committee, comments to this newspaper.
And indeed, despite the tough tone adopted by central banks, with Christine Lagarde at the ECB and Jerome Powell at the Fed putting on their hawk suits to imply that interest rate hikes would continue in the coming months with With the goal of tackling inflation, the indices seemed more oriented towards the color green: the feeling of having avoided a harsh recession and that price growth had already peaked had buoyed up.
Some analysts had even warned of the risks of becoming too complacent. "Investors have underestimated the impact that these continued high prices will have on companies, because those that cannot pass on these cost increases will continue to see their margins eroded," said Louise Dudley of Federated Hermes. Well, with the corrections of the last few sessions, it seems that the stock markets have finally landed on reality. "The market has decided to focus again on the tough rhetoric of the Federal Reserve," said Peter Cardillo of Spartan Capital.
So, for those who want to invest, the strategy has become even more complex. “Banks are now attractive again after a long time, just like fixed income. Valuations for some stocks are interesting after the recent declines,” says Thozet. “You have to go in search of opportunities, it's not like before, when you bought shares of big companies and stayed put. Active portfolio management is required”, he maintains.
Looking at the most immediate, analysts will be watching the evolution of wages and the labor market (both indicators of the real economy that suggest whether the economy is overheating or depressing), as well as data on the increase in delinquency, in a context of rising debt.
In addition, we will have to keep an eye on geopolitics, which beyond Ukraine has other fronts in Taiwan or Iran. After stubborn optimism comes the time of informed realism.
