Caution always in order according to Cholet Dupont
After the drop in shares in recent weeks, Vincent Guenzi, strategist at Cholet Dupont, notes some short-term positives. “If long rates stabilize, this will help equities whose valuations have become very acceptable again in view of their PER. The magnitude of their decline already largely factors in the risk of a recession or contraction in earnings. This comment is particularly appropriate for European stocks and the most cyclical companies. As in July, the next quarterly results publication period could contribute to fueling a technical recovery lasting a few weeks following the decline since mid-August. »
However, this expert does not believe that the bear market has come to an end, because the market did not experience a phase of capitulation characterized by a very strong surge in volatility. In addition, profit estimates have not been sufficiently revised downwards.
For an upward trend to manifest itself, three conditions are necessary: control of inflation synonymous with the end of monetary tightening; a rise in earnings estimates signaling the end of the economic slowdown; lower valuations and a drop in indices of around 30% since their peak; reduced geopolitical risk for European equities.
A decline probably not complete
” In conclusion, the still uncertain environment encourages us to remain cautious. The decline in equity indices is probably not over, but the potential for further decline has diminished. In the short term, technical recoveries are still envisaged.While the United States seems better equipped to resist the risk of recession, American equities are more expensive, while the prices of many European equities seem to reflect the risks incurred. »
In the short term, Vincent Guenzi is neutral on equities. But it remains overweight in the medium term on American and European stocks. In terms of bonds, all asset classes are underweighted in the short and medium term, with the exception of US government bonds and emerging debt, where neutrality is required over both periods, and government bonds. ‘Rated European state only for the short term.
Investing opinion
We are also cautious in the short term on equities. While valuations are attractive in Europe, the low point does not seem to have been reached for the reasons perfectly summarized by Vincent Guenzi. A drop of 30% from the highest would be synonymous with around 5,200 points on the Cac 40, a level that would justify purchases.