11/03/2024

Investor optimism continues as the narrative of a soft economic landing supports the belief that the Fed will effectively control inflation while maintaining economic stability. In Powell's recent six-monthly appearance on Capitol Hill, he expressed no concern about rising asset prices, which may be at odds with his goal of keeping financial conditions tight to combat economic excesses. Contrary to expectations, Powell told the market what it wanted to hear: that the Fed is “not far away” from the necessary confidence level to begin lowering rates. He also stated that rate “cuts are likely in 2024”.

Despite the decline in global stock markets on Friday, the MSCI global index achieved its ninth consecutive bullish week and the seventeenth in the last 19 weeks of trading.

In the United States, there was positive news regarding market breadth. Although the S&P 500 was unable to end the week higher as it was weighed down by the large companies in the index, the equal-weighted version of the index (where Apple's percentage weight in the index equals that of the company with the smallest company) eventually managed to surpass its previous all-time highs from January 2022 and close higher for the seventh consecutive week. Except for Nvidia, which maintained its strong bullish trend, the other members of the Magnificent Seven experienced significant weekly losses, particularly Apple and Tesla, with both companies shedding over 13% of their market capitalization in the past week.

Overall, the S&P 500 ended the week with a decrease of -0.25%. Rate-sensitive sectors like electric utilities and real estate outperformed this week , while growth sectors such as technology, consumer discretionary, and communication services faced significant declines. The value investment style made a strong comeback from its previous weakness in February.

The European stock markets ended the week with gains of approximately one percentage point, boosted by better PMI indicators and reassuring comments by Lagarde. The Eurostoxx 50 index reached new highs not seen since late 2000 on Thursday, with an annual appreciation of nearly 10%, surpassing the growth seen in the US selective index. Sector performance mirrored that of the US, with only consumer discretionary companies experiencing a slight decline for the week.

In Japan, signs that inflation will remain in line with the Bank of Japan's target caused the yen to appreciate significantly, which in turn had a negative impact on the equity markets. As a result, the Nikkei 225 ended the week down by around half a percentage point.

Looking ahead to the upcoming week, marked by significant economic data releases and the spotlight on US inflation figures, equity markets are hovering around historical highs with strong momentum. This heightened momentum poses a risk to the sustainability of the current trend in the short term. We maintain the belief that a period of price consolidation would be beneficial, helping to alleviate recent market excesses. The market has seen an impressive run of 17 consecutive bullish weeks out of the last 19 in the MSCI world index (and with a decline of -0.04% in one of the two negative weeks since the end of last October). Certainly, the old stock market adage, which goes back to a German proverb, is true: trees do not grow to the sky. There are natural upper limits to price rises, and the ongoing trend will inevitably come to an end. The tech giants, which have been at the forefront of the 22% rally on the global stock markets since the turn of the year, are beginning to show signs of fatigue. On the positive side, however, market breadth is increasing and various other companies are now driving the upward momentum.