As the Russian military offensive intensifies in Ukraine, the stock markets experienced a week of market correction. The worst week even for the CAC 40 index since March 2020: the Parisian index lost in five sessions nearly 10% and 4.97% on Friday’s session alone. The index is now flirting with 6,000 points and has pulverized its one-year moving average downwards, a sign of a real market reversal.
The trend is also bearish on Wall Street, the sound of the cannon in Europe ignoring the good statistics on job creations. The VIX index of equity market volatility, dubbed “the fear index”, even climbed to 45 points in Europe, while remaining well below its March 2020 level.
READ ALSO | On the markets, Russia, on the verge of bankruptcy, is worth almost nothing
“We are hunkering down but there is still appetite for equities and everyone is waiting for a positive signal to return to the market”, says a manager. However, managers are starting to reduce their equity exposure in their portfolios, generally to neutral. And, for the first time since 2020, it is starting to have cash outflows from equity funds, in favor of bond funds.
Weakening of profits
In fact, no positive signal is emerging for the time being, unless the central banks moderate their monetary tightening policy more clearly or a respite appears on the Ukrainian front. But Russian President Vladimir Putin seems to be engaged in an all-out war and has repeatedly reaffirmed that he will go after his military objectives, the complete occupation of Ukraine.
For the time being, only corporate results have enabled stock market indices to withstand this unprecedented crisis in Europe. But the “sau-qui-peut” on Russian assets could have serious consequences on the results of the first quarter of companies exposed to Russia, with massive write-downs of assets.
With, in germ, the beginning of a downward revision of earnings expectations for 2022. Especially since the soaring prices of raw materials will end up weighing on the margins of companies whose margin rate has experienced a historic peak since 2005 at 9.3%. It’s hard to imagine that this level can last with rising interest rates, record high oil prices and high cost inflation.
But does this signal a new bear market cycle? Eric Galiègue, market analyst at Valquant Expertyse, thinks so: “a consolidation is underway and it is necessary. But the risk of a challenge to the uptrend is real for the next few weeks, due in particular to the sustained rise in oil prices, the rise in rates and the weakening of profits in 2022”.
Central banks may be able to give markets a glimmer of hope next week.