Christmas is early this year on the Paris Stock Exchange. Its flagship index, the CAC 40, crossed a new historic high on Tuesday morning during the session, reaching 7582.47 points, before falling slightly in the afternoon, to 7543.55 points. The historic closing record remains that of last Friday April 21, at 7577 points. Since its last low point at the end of October, the CAC 40 has rebounded by more than 11%. And it has appreciated by 16.53% since January 1st. A contrast with 2022 (-8.5%), a year marked by the war in Ukraine, soaring inflation, the energy crisis and rising interest rates.
“2023 is a year of catch-up,” underlines Samy Chaar, chief economist at Lombard Odier. The euphoria is perceptible in all the major world markets. In Frankfurt, the Dax has been flying from record to record for several days (20.5% since January) and the Eurostoxx 50, which brings together the 50 largest European capitalizations, is only a stone’s throw from its peak reached at the beginning 2007. Same trend on Wall Street, where the S index
On both sides of the Atlantic, the decline in inflation and expectations of a reduction in interest rates by central banks next year are boosting prices. As expected by the markets, in November, prices rose 3.1% year-on-year in the United States (after an increase of 3.2% in October and 3.4% in September). In the eyes of investors, this means that the American Federal Reserve (Fed) will leave its key rate unchanged for the third time in a row at the end of its meeting on Wednesday. As a reminder, it had raised it eleven times since March 2022, bringing its interest rates to their highest level in twenty-two years, in a range of 5.25% to 5.50%. Same scenario expected in Europe, where the European Central Bank (ECB) should opt for the status quo on Thursday and not raise its rates, which have gone from 0% to 4% in eighteen months.
Inflation is, in fact, also declining in the Old Continent where it fell to 2.4% in November (compared to 2.9% in October). “We have the impression that the peak of the price increase has passed,” notes Samy Chaar. The economic outlook in France and Europe, where growth has not collapsed, is improving. From next year, the ECB should be able to gradually relax its monetary policy to restore some ballast to the economies.”
A drop in rates should give some breathing space to households and businesses. But expectations are very high. “The markets are betting for next year on a decline in interest rates of 120 basis points (1.2%) in Europe and 110 basis points (1.1%) in the United States,” notes Charles de Boissonson, head of equity strategy at Société Générale CIB. But expectations regarding Europe seem excessive to us, because inflation will not fall as easily as expected, in particular due to wage increases. And these will drive up consumer prices, or lower corporate margins, which will not be good for the profit expectations that have kept the market rising until now.”
The prospects of a change in monetary policy by central banks have already brought down sovereign bond rates, which had risen significantly in October. After reaching 5%, the ten-year US government bond fell to 4.22%. Same trend in France for the ten-year OAT, falling to 2.76% on Tuesday (compared to 3.5% in October). Which restores investors’ appetite for risky assets. Especially since businesses are holding up quite well in this troubled environment. “Overall, in the third quarter, companies continued to generate good results and managed to maintain their margins,” underlines Charles de Boisenton. This was not anticipated and is fueling the market rebound.”
2023 has not been easy on the markets, with numerous trend reversals. After a strong start to the year, the markets were taken by surprise in March by the slowdown in Chinese growth and especially by the crisis in medium-sized American banks. This caused stocks to capsize, particularly banking stocks. And sent to the carpet Credit Suisse, which had to be bought urgently for a pittance by UBS. Noting that the crisis was limited to the United States and Switzerland, the stock markets then moved forward. On April 21, the CAC even broke its historic closing record. But the clouds reappeared during the summer: fears of further rate hikes by central banks sent the market lower for three consecutive months (between August and October). The first signs of falling inflation then made it possible to reverse the trend.
Despite this turbulent context, thirty-three flagships of the Parisian coast have been in the green since the start of the year. But the valuation differences can be very significant. “The industrial sector was a driving force, driven by a catch-up phenomenon since it had not benefited from the post-Covid rise in stocks,” notes Christopher Dembik, investment strategy advisor at Pictet AM. Stellantis (58%) thus tops the best performances of the year, followed on the podium by Safran (43.24%) and Hermès (39%).
Several companies (Publicis, Schneider, etc.) are even close to their all-time highs. “Companies which are accelerating or which have strong visibility on their future activity are those which have climbed the most,” underlines Frédérique Nakache, French equity manager at Ofi Invest AM. Their business models are considered more secure by the market.” The luxury sector, a heavyweight on the Parisian coast, “also held up well despite half-year results considered by the market to be lower than expected,” adds Christopher Dembik. Conversely, disappointments and mishaps were very heavily penalized. “Investors are wondering about their ability to perform in the years to come,” estimates Frédérique Nakache.
Worldline, which will leave the CAC 40 on December 18, is the bottom of the index, with a fall of 57.19% since January, followed by Alstom (-51.36%) and Teleperformance (-47.04%). Experts expect the upward trend to continue until the end of the year, barring any unforeseen events. Forecasters are showing moderate optimism for 2024. “Many things have already been anticipated,” emphasizes Samy Chaar. We should return to a more normal market environment, driven by corporate profit growth and not just by the macroeconomy.”
