The US indices tried to recover yesterday, but they were again pulled down by technology, cyclical consumption and, more rarely, financial stocks. In the end, the Nasdaq 100 lost another 1% and is now down 10% from its November highs, which technically characterizes a correction phase. For statisticians, there have been 33 correction phases in 40 years on the S&P500, which lasted four months and led to a decline of 13% on average (sorry for the repetition). The S&P500, for its part, is down 6% from its historic peak of January 4th. The coming Fed rate hikes still upset Wall Street.
In Europe yesterday, indices faltered but luxury came to the rescue. This is the case of an index heavily weighted by sequins, leather and rhinestones like the CAC40 with its trio LVMH, Hermès and Kering. Just for once, it’s the Swiss Compagnie Financière Richemont and its top-of-the-range results in 4and quarter which boosted prices. The owner of Cartier and Piaget was well helped by an honorable publication from the British sector outsider Burberry. Decidedly, luxury has more than one trick up its sleeve, even in times of shortage and inflation. Looks like investors got it right.
To take a little height, I propose this morning to examine the latest report from Bank of America on financial flows and the behavior of major investors since the beginning of the year. Said like that, it sounds really depressing, but I’ll try not to be too painful in the following lines.
While US tech stocks struggle to get their heads above water after a rocky start to the year, financial flows into European equities are particularly buoyant. Bank of America last week measured $1.9 billion in inflows for Europe-focused funds, the vast majority going into passive management. This is the 7and strongest weekly fundraising in the last two years. Since 1er January, it was the financial stocks that received the biggest flows, which will not surprise anyone as the sector is so fashionable. Banks in particular, which are overweighted at 41% by investors, Bank of America tells me, which also highlights the reduction of the overweighting of Technologies to 1%, the lowest level since… December 2008. This appetite for banks may have been dampened somewhat by the fall of JPMorgan Chase and Goldman Sachs in the wake of slightly weaker than expected performance. But these are investment banks and not retail banks, which may be important in the months to come.
Another interesting parameter of the survey, which moreover translates very well the general feeling, the performance gap between cheap stocks (those called “value”) and expensive stocks (rather the so-called growth stocks ) reached 30%, the highest difference ever recorded since 1992, when the collection of this type of data began. It should be noted, however, that a big gap was already at work last year at the same time, before closing. The popular stocks during this rotation are, in order, very low 12-month PERs, risky stocks and low-quality stocks.
Bonus gift of the day: to evolve in the environment of rising rates, Bank of America flushed out twelve European stocks that are not very sensitive to the volatility of bond yields. These securities must have a capitalization of more than €5 billion, net margin expectations that are neither too high nor too low, a beta of less than 1.1, an insignificant slope compared to variations in 10 European bond yields and a share of short-term debt in total debt below the market median. No French or Swiss values in the selection: UPM-Kymmene, Mondi, KPN, Akzo Nobel, Proximus, Holmen, Mowi, Smurfit Kappa, Flutter, GN Store, Sage and Howden Joinery. On good terms…
In the morning news, the Chinese central bank (PBOC) cut two of its key rates, which comes on top of the two cuts already announced earlier this week on other loan lines. The objective is to support the economy at a turning point. “The question remains whether banks will respond by increasing lending” to the real economy, underlines this morning ING. The news in any case benefits the Asian markets which end up, like a Nikkei which gained 1.1% at the bell. This also benefits the European leading indicators which evolve in the green despite the new decline of Wall Street.On the geopolitical front, it should also be noted what looks like a blunder by Joe Biden on Ukraine, since the American president has publicly evoked two scenarios , an invasion and “minor incursion” of Russia. The backpedaling of his advisers was not enough to silence critics, blaming Biden for having given up on preventing Vladimir Putin from carrying out his threats. It is also a subject of domestic politics in the United States since the Democratic president is not at best in the polls, it is necessary to succeed in imposing his policy.
Economic highlights of the day
European inflation for December (11:00 am) will precede several US statistics. Weekly New Jobless Claims and Philly Fed Index for January (2:30 p.m.), Old Home Sales for December (4:00 p.m.) and Weekly DOE Oil Stocks (4:30 p.m.).
The euro/dollar pair is stabilizing at 1.1345 USD. The ounce of gold rose to 1838 USD. The barrel remains firm at 88.46 USD for Brent and 85.90 USD for WTI. Bitcoin is holding around $42,000.
The main changes in recommendations
- Bouygues: Oddo BHF resumes neutral tracking, targeting EUR 34.
- Commerzbank: Exane BNP Paribas goes from neutral to outperformance by targeting EUR 9.
- Compagnie Financière Richemont: Goldman Sachs raises its target from 158 to 167 CHF. UBS raises its target from 169 to 184 CHF.
- Danone: Berenberg remains on sale with a target reduced from 55 to 54 EUR.
- Deutsche Börse: Jefferies remains long with a price target raised from 167 to 180 EUR.
- Electricité de France: Morgan Stanley goes from overweight to online weighting by targeting EUR 10.
- Evolva: Berenberg goes from hold to buy targeting 0.23 CHF.
- Evotec: Berenberg starts long tracking by targeting EUR 51.
- Geberit: Jefferies remains underperforming with a price target reduced from 553 to 549 CHF.
- Hellenic Petroleum: Goldman Sachs goes from buying to neutral, targeting EUR 7.50.
- Hikma: Peel Hunt goes from keeping to buying.
- La Française des Jeux: Oddo BHF goes from neutral to outperformance by targeting EUR 38.
- LVMH: Jefferies is still buying with a price target raised from 725 to 830 EUR.
- Nestlé: Berenberg remains on the buy side with a target raised from 130 to 140 CHF.
- Paradox Interactive: Jefferies goes from buy to hold aiming for 175 SEK.
- Philips: Jefferies goes from buying to keeping, aiming for 32 EUR.
- Rentokil: Citigroup goes from neutral to buy, targeting 650 GBp.
- SGS: Credit Suisse goes from neutral to underperforming, targeting CHF 2,700.
- Siemens Healthineers: Jefferies goes from hold to buy targeting 75 EUR.
- Thule: SEB Equities goes from holding to buying, targeting 550 SEK.
- Universal Music Group: Goldman Sachs starts tracking the purchase by targeting EUR 29.90.
- Vinci: Societe Generale goes from keeping to buying, aiming for EUR 114.60.
In France
Important (and less important) announcements
- Vinci wins a contract in New Zealand.
- Alstom announces a turnover increase of 11% over nine months and confirms its forecasts.
- Pierre Barnabé will lead Soitec from July 2022.
- Valneva announces that its inactivated vaccine candidate shows neutralization of the Omicron variant.
- Enertime obtains €8.5 million in grants from the European Commission as part of the Horizon Europe program.
- Fred Vianas becomes Managing Director of Union Financière de France.
- AB Science obtains the green light from the ANSM to initiate a phase II study (AB20006) with Masitinib in patients with severe mast cell activation syndrome.
- Everwood, participation of Transition Evergreen, enters the capital of Forestry, 1st independent French player in the management of forest assets.
- Orapi beefs up its executive committee.
- Namr is continuing the development of namR x Addactis in multi-risk home insurance.
- Archos will consolidate its shares and should list its medical division by the end of the quarter on Euronext Access.
- Kumulus Vape signs a distribution agreement with Innokin, one of the 3 world leaders in vaping.
- BD Multimedia raises €1.18 million through private placement.
- Atari wants to subscribe to the Disclosure & News service of the US OTC to comply with the regulations.
- Virbac, Getlink, Trilogiq, Drone Volt, Ecomiam, Altheora, Argan and Axway have published their accounts and/or forecasts.
In the world
Important announcements (and others)
- Unilever will not increase its offer on GlaxoSmithKline Consumer Healthcare.
- Google creates a blockchain division.
- United Airlines losses are lower than expected in Q4.
- China denies wanting a right to scrutinize the investments of internet giants.
- The Swiss online store zurrose-shop.ch of Zur Rose, specialist in over-the-counter cosmetics and body care products, victim of data theft.
- Main results publications : Netflix, Union Pacific, Intuitive Surgical, CSX, Sandvik, Alstom, American Airlines, Belimo, Avanza, Vétoquinol…
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