European stock markets are capitulating to the threat of inflation… or recession

Le CAC revient sur les 6.200 points, ce qui rend les actions plus attractives, faute d

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Stock markets finally stopped and once again the storm came from the United States. Admittedly, the US Federal Reserve proved to be less aggressive than expected after a two-day meeting of its monetary policy committee, ruling out the scenario of accelerating its monetary tightening, despite very high inflation. In the end, the US Federal Reserve was content, as expected, to raise its benchmark interest rates by 50 basis points rather than the 75 basis points that some feared.

“Central banks are very firm in their rhetoric, but in the end they let the markets act on their behalf.” says one bond manager. “They have lost a lot of credibility and that is why we are witnessing a bond collapse since the beginning of the year”he adds.

European squares in red

This is the point of tension in the markets. The latter are now questioning the Fed’s ability to curb inflation without disrupting growth. The spectrum of the recession in 2023 is even appearing in the United States, as evidenced by the flattening of the yield curve. A scenario that was still unthinkable just a month ago.

So the growth stocks (due to the coefficients) and cyclical values (economic slowdown) are sinking together, with the exception of oil and raw materials. After a train game, the American indicators however, resisted during the week, with the black hole on Thursday, a meeting burdened by the technological values.

More surprising is the stagnation of European stock markets, at the end of a season of publication of rather good quarterly results. So the CAC 40 performed more than 4% in the last five sessions, to push the 6,300-point threshold. the same for me Euro Stoxx 50 and other European indicators.

As nothing is simple in the markets, it’s probably the good data on employment in the United States that seems to have scared investors this Friday. Unfortunately, growth is still strong across the Atlantic, opening the door to a 50-point rise in US interest rates by 50 basis points in June, July and possibly even September (excluded in advance). . Between the fear of inflation or the fear of a recession, markets no longer know where to turn to sell. All this leads to great instability, to the great benefit of market participants.

There is still no alternative

However, according to a management company investment manager, “At 6,300 points, the shares are starting to become attractive again.” US stocks have fallen sharply since January, European stocks slightly lower, but given the earnings release and even some rather upward revisions to the 2022 earnings outlook, stock prices have returned to 2017 levels about 18 times S&P earnings 500 and 13 times in CAC 40.

Investors could then return to stocks regularly, especially since the credit alternative is still scary. The fall was indeed violent – more than 10% in interest rates over three months – and many are still waiting for a new outbreak of fever in bond rates.

Enough to discourage the reckless who would be tempted by returns that have become much more attractive for quality higher debts. But there are still not many buyers other than insurers. Credit funds were outflowing even at the end of April. There is still a lot of cash to invest in and the stock is still emerging as a safe haven. Subject, of course, to a sharp deterioration of the situation in Ukraine.