In the last sessions the volatility has returned to being a protagonist on the stock markets. The trend on Monday 19 July was emblematic, with the main European indices recording decreases in the order of 2-3%.
Some operators, therefore, are wondering if the positive trend of the markets underway since November 2020 has come to an end. About this Clement Inbona, – manager of La Financière de l’Echiquier – recalled that a break is nothing surprising after a rally of more than 40% in a few months.
However, in the following analysis, the expert pointed to small cracks in the equity markets caused by three anxiety-inducing elements.
Equities in the Eurozone have registered a slight correction since mid-June.
Could it be just a healthy breath of fresh air? The EuroStoxx 50 lost around 4% between June 17 and July 8, of which more than 2% on the last day. Could this be the end of the party that began in November 2020 with the arrival of the first Covid vaccines?
A break is nothing surprising after a rally of more than 40% in a few months. The alignment of the planets since last November was such that one could hardly imagine a different scenario. Extremely accommodative monetary policy, unprecedented budget expenditures, prospects for a rebound in corporate profits, savings reserves ready to be spent but, above all, return of confidence among economic agents worn out by months of depression: the ingredients for a bullish cocktail c ‘They were all.
In recent weeks, however, some small cracks caused by three anxiogenic elements.
In the US, the Fed is beginning to prepare markets for the end of the liquidity stream. The perspective, of course, is barely hinted at but the change of direction is perceptible.
Furthermore, the economic euphoria that accompanies the reopening seems to be gradually fading. This is certainly not a slowdown, although good economic surprises are becoming rarer. The transition from a sustained recovery to a more measured growth cycle is also emerging.
Finally, the Delta variant reminds us every day that the health issue should not be ignored. Even if the vaccination campaigns manage to stem a new wave it must be said that the dam is not entirely waterproof, as the situation in the United Kingdom shows. Although the country boasts one of the highest vaccination rates in the world, the number of cases is continuously growing. Vaccination provides relatively good protection against the most severe cases of Covid but can only contain the spread of a virulent mutation. And in a globalized economy where production chains are geographically interdependent, a major outbreak of the disease risks paralyzing recovery, causing further delays and higher costs. This hypothesis seems more plausible in emerging countries where vaccination campaigns are less widespread than in developed ones.
The picture behind the large indices is almost similar. Investors who rushed into discount and cycle-sensitive stocks in the first quarter are starting to return to investing in growth stocks, which are less dependent on the business cycle. It is another sign of the caution that will move investors in the coming months.
Several market signals therefore invite one greater prudence and selectivity in terms of securities or asset classes. We cannot speak of a real hangover headache … even if the slight intoxication that had so far lulled investors begins to subside.