The CAC 40 and Wall Street soared in the last sessions of the week. A counter-intuitive firework, as it follows the publication of worse than expected inflation figures in the United States, which suggest that the Fed should continue to remain strict on the monetary policy front, with a significant increase in its key rate as a result. Inflation in the United States, “the main variable to follow for the Fed and the markets, again surprised on the upside in September with underlying inflation (excluding volatile elements, editor’s note) reaching a new high for 40 years. , at 6.6%”, emphasizes La Banque Postale Asset Management (LBPAM).
Inflation pressures “continue to broaden and strengthen in services, raising concerns that they may be more durable. Of course, US inflation will slow down quite sharply in the coming quarters thanks to the lower rise in the prices of raw materials and manufactured goods, but this slowdown risks being too slow and insufficient to bring inflation back towards the target of 2% (of the Fed, editor’s note) before at least 2024, in our opinion”, warns the asset manager, for whom the Fed remains totally determined to ensure that inflation does not become endemic, which will “the push to continue raising rates aggressively despite the risk of recession”.
Stock market: the former star manager of George Soros fears a shock, the error of the Fed on inflation has serious consequences
The American economy will suffer from the significant tightening of financial conditions (American mortgage rates exceed 7% for the first time since 2022) and “a slight recession next year is likely”, judges LBPAM, who underlines that “the Fed knows and accepts it if it is the price to pay to control inflation”. For the asset manager, the markets have yet to accept that the Fed will not come to the rescue of the markets and the economy as quickly as in the last 30 years until it is confident that inflation is again under control. Especially since the “minutes” of the September meeting report that for the Fed, “the risk of doing too little to bring inflation down probably outweighs the risk of doing too much”.
However, many players are gradually adopting a more optimistic stance on the stock market, judging that the bulk of the tightening of the Fed’s monetary policy is now behind us and betting that central banks could be more and more inclined to gradually ease the (up) pressure on rates, in the face of the marked fall in the stock market and the rise in risks for the global economy and the financial system.
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Already, in recent times, some observers have noted that certain remarks by the Fed and the ECB constitute a thinly veiled threat to the attention of those who bet on a further fall in the markets. Some members of the Fed also pointed out that certain elements were going in the right direction (gradual calming down of the labor market, real estate, retail sales, etc.). Kansas City Fed President Esther George warned that raising the key rate too quickly could shock financial markets. And in the UK, the Bank of England was forced to intervene in the face of soaring long-term interest rates. Likewise, ECB communication has become more mixed lately…
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Finally, on the front of the war in Ukraine, if tensions with Russia have increased in recent weeks, Alexandre Baradez, head of market research at IG France, judges that the remarks recently made by Moscow constituted a possible opening to negotiations. with Kyiv.
Momentum pulled out of the game
Despite a particularly erratic Paris Stock Exchange this week (like Wall Street), Momentum, Capital’s dedicated daily premium investment letter and newsletter, managed to thwart market pitfalls, thanks in particular to technical analysis (chart and mathematics of price changes).
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Indeed, while we have remained cautious this week on the likely trajectory of the stock market, the preservation (at the end of the session) of key supports until October 13 on the CAC 40 and the S&P 500 (flagship US equity index ) encouraged us not to go negative on our stock market expectations.
And some encouraging signs detected on Thursday afternoon even encouraged us to go positive in the short term, wisely, since the CAC 40 rose in session on Friday October 14 to its peak of October 4 (6,040 points) , before suffering some legitimate profit-taking in the last hours of trading, given the extreme rapidity of the rise in prices and the proximity of major resistance.
Stock market: in which sectors to invest in times of crisis?
In addition to the outlook for the CAC 40 and Wall Street (S&P 500, Nasdaq Composite), we gave our point of view on the likely future evolution of Tesla, Engie, LVMH, L’Oréal, Microsoft, Danone, BNP Paribas shares. , Virbac, Imerys, UnibailRodamcoWestfield (URW), with bullish or bearish expectations… And even on those of ether (Ethereum) for cryptocurrency enthusiasts.
On the satisfaction side, our bullish expectations of the last few weeks and months have generally held their own, with a good performance by Bic, Boiron, Prodways, Virbac (among others). And conversely, our bearish anticipation on Tesla, initiated with very good timing, materialized, the action having returned to a major support zone, now likely to favor a rebound.
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Author’s declaration of interests