A world economy in recovery but stock markets at the zenith. 2023 is off to a strong start for the CAC 40, which is approaching 7,000 points, i.e. its level on February 11, 2022, before the invasion of Ukraine, global inflation and the rise in central bank key rates. But how to explain such strength in the stock markets after the annus horribilis that was 2022?
It’s all about anticipation. And for once, investors see 2023 as a bright year with the end of all our problems. First of all, it should be the year of the end of key rate hikes, which rose by 250 basis points in a few months in Europe and even 450 basis points in the United States. ” Markets are even expecting a rate cut before December as the US Federal Reserve has assured that it will not “Explains Alexandre Baradez, head of market analysis at the broker IG France. From this perspective, the coming year would therefore be that of the victory of the world economies against inflation in view of the latest figures in decline for the consumer price indices in Europe and the United States, and the slowdown in the rise salaries across the Atlantic.
Combined with this slowdown in inflation, 2023 sounds like a double victory for investors since the central banks, like the OECD and the IMF, do not anticipate a strong recession. “A year ago, we would have predicted a recession of 5 or even 6% in 2023 with everything that happened during the year. In the end, we will only be at 0% growth or slightly negative growth says Frederik Ducrozet, Head of Macroeconomic Research for Pictet Wealth Management.
Finally, the icing on the stock market cake: the reopening of China.
If the opening of borders and the resumption of economic activities of the second world economic power worried the world stock exchanges for a few days for fear of a resumption of the Covid-19 epidemic, it is ultimately the boost to the global economic activity that has become entrenched in investors’ minds. Thus, this news coming from the Middle Kingdom suggests that 2023 will truly be the year of global economic recovery.
Markets ready to turn around
If euphoria reigns on the markets in the face of prospects of definitive exit from the consequences of Covid-19 in 2023, it may not last.
« There is a phenomenon of fear of missing an opportunity (FOMO) notes Alexandre Baradez. The analyst explains this phenomenon by a very positive anticipation of the year 2023 by investors and by the fact that “the managers’ cash pockets are still very swollen, so this may encourage them to take risks and invest now”he adds.
But these bullish movements seem unjustified for the two experts. The certainty that the markets have of an easing of central bank rates before 2024 seems indeed very presumptuous for Frederik Ducrozet who does not anticipate this scenario. ” Central banks will keep the fight against inflation on course to the detriment of growth because they will not repeat the mistakes they made in the 1970s of raising and then lowering their rates too quickly, which caused several periods of inflation and recession », Explains the Pictet economist.
Financiers are therefore warning of a possible zone of market turbulence in the first quarter of 2022. Worse-than-expected corporate results or poor growth or inflation figures could undermine investor certainty and lead to a market correction. “The worst is over but it will take a good quarter to see the improvement in global economies arrive”warns Alexandre Baradez.
From this perspective, the most downside sensitive sectors are “ traditional stocks, called value, such as energy companies, automotive or leisure companies, because they have risen a lot in the last year “, specifies the analyst of IG. Conversely, technology and growth stocks which have experienced strong downward movements throughout 2022 should be less exposed to a correction, which does not mean that they will rise in the first quarter.
The second and third quarter are looking much better
If the markets seem too high perched at the start of the year to be able to be exposed to them serenely, the second half of the year seems much more suitable for buying shares according to the two experts. ” There is little reason to imagine a market collapse in 2023, but a lasting rise in the CAC 40 above 7,000 euros seems unlikely », Estimates Frederik Ducrozet, at Pictet Wealth Management. For his part, Alexandre Baradez, at IG, also estimates that the Parisian index will oscillate between 6,200 points and 7,000 in 2023. It may therefore be interesting to wait for a retracement of the stock market indices to switch to buying and take advantage of the lightening on the world economy expected in the year. According to the IG analyst, the most promising sectors in the long term would be those of semiconductors, defense and armaments and listed real estate.