01/29/2024

Two of the laggards in the 2024 market race made up ground over the past week, which saw significant gains in the European and emerging equity markets. Meanwhile, the macroeconomic data published in the United States gave investors reasons to continue to expand the upward trend across the Atlantic. Global stock markets stringed together a third consecutive week of gains, closing up just over one percentage point. As a result, January is shaping up to be a new bullish month for risk assets.

There were several reasons why the Eurostoxx 50 index spiked over 4%: first, the ECB did not close the door to a rate reduction before summer, contradicting the austere messages from the members of the Governing Board, who had spoken out in the days leading up to last week's meeting. Elsewhere, the stock market bailout package announced in China and the aggressive drop in the ratio of banking reserves, boosted investor optimism with respect to the Asian giant, which is critically dependent on the economic activity in the Old Continent. Finally, the publication of business results in Europe gained strength, and the surprises were mostly positive. Specifically, the profits reported by LVMH and Remy Cointreau, two companies that had been severely beaten down, received investor approval. Similarly, the earnings of chip manufacturer ASML confirmed the good forecast from the Taiwanese company TSMC in the semiconductor sector.

In the United States, macroeconomic data were in the spotlight, and they managed to breathe optimism into the market by reinforcing the narrative of a soft economic landing. Although the S&P 500 took a brief respite in Friday's session, the week saw new all-time highs. In fact, the index has managed to close higher in 12 of the last 13 weeks, which is absolutely extraordinary from a historical point of view. Of course, the strong easing of the financial conditions that are causing the increase in asset prices is against the interests of the Federal Reserve. This, especially in the current economic scenario of full employment, generates inflationary risks and limits the Fed's ability to lower interest rates.

Meanwhile, the market will monitor the Federal Reserve's monetary policy decisions very carefully. The Fed may maintain a balanced outlook, recognizing the progress made in terms of inflation while also considering the contradictory signals between the strong activity data and the weakness in the leading indicators.

We will also have the release of the quarterly results of many of the American technology giants, such as Meta, Alphabet, Amazon, Microsoft and Apple, which will announce their earnings following significant gains in their share prices. AI and its applications will be the main focal points. The optimism built into the prices is one of the main risks when releasing earnings that, despite being very good, may not live up to the extraordinary hype.

In Europe, the week's highlights will no doubt be January's inflation data and fourth quarter GDP growth, which could provide a positive surprise in the case of the CPI, but a negative one in terms of economic growth.

In short, the week is extraordinarily important on a number of fronts and we will have to see if investors can stay optimistic. In any case, the market's momentum is extraordinary and we think that any correction should be interpreted as a buying opportunity, as long as it does not change the current market narrative, according to which the economy will reach an ideal state, with full employment and stable growth that does not generate inflationary pressure, and that will allow central banks to start lowering rates.