2023 will have been the year of all records for the CAC40. The Parisian index exceeded 7400 points on Monday morning. Never seen. But is this stock market rally intended to last? Or should you take your winnings before it’s too late?
Since the beginning of the year, the CAC40 has been sparking. And for the first time in its history, the flagship index of the Parisian market has just passed the milestone of 7400 dots this Monday morning even if it closed at 7379 points, a slight increase of 0.33%. A rebound that took financial analysts by surprise.
dark clouds
Because the 2022 vintage had been rather mediocre for the equity markets. The CAC40 thus closed the year with -9% losses, against a backdrop of inflation, the war in Ukraine and the rapid rise in central bank rates.
Have these dark clouds disappeared today? Absolutely not. Inflation is still holding up. In France, soaring prices thus reached 6.2% over 1 year in February, according to INSEE estimates. While the war in Ukraine is still raging.
At the same time, the European Central Bank (ECB) raised its interest rates by 50 dots base on February 2. This is the fifth increase since July 2022. And the rise in rates should continue to reach 4% in February 2024.
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Luxury at its highest
So what fly could have bitten the financial markets? The record performances of the CAC40 are partly explained by the composition of the index, explains Antoine Fraysse-Soulier, market analyst for the broker eToro.
In fact, luxury values represent almost 25% of the total valuation of the CAC40. But the luxury industry has never been so good. The action of the LVMH glove, for example, increased by around 18% since January 1 to reach 824 euros.
Same story on the side of Herms (+18%) and Kering (+19%). The luxury sector is driven by the recovery of China, decrypts Antoine Fraysse-Soulier. And for good reason: after 3 years of strict confinement, Xi Jinping has made a 180 turn.
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Chinese takeover
The Chinese leader has abandoned the zero Covid policy. Result? For the first time since July 2022, Chinese manufacturing activity progressed in February, notes Philippe Crevel, leader of Cercle de l’Epargne.
The Chinese authorities foresee a growth of 5% in 2023, against only 3% in 2022. And this return of China to the forefront of the world economic scene further wards off the risk of recession.
In its latest publication, the International Monetary Fund has raised its outlook for world GDP growth by 0.2%to wear them 2.9%. For its part, the European Commission is counting on 0.6% of growth in France over the year 2023.
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Pricing power
In other words, the worst seems to have been seen. But that’s not all. The CAC also benefited from the excellent results that companies published during the last quarter, adds Antoine Fraysse-Soulier.
Driven by the surge in hydrocarbons, TotalEnergies generated more than 36 billion euros in profits in 2022. A record. And the oil tanker is not an isolated case. The turnover of the Stellantis group, for example, increased by 18% over the same period.
Because so far, companies have succeeded in passing on the increase in costs incurred in their prices. And this, without observing (for the moment) a negative impact on demand. This is called pricing power. It remains to be seen how long this can last.
Is the stock market rally at the start of the year sustainable? It is possible that prices will rise again, believes Antoine Fraysse-Soulier. But given current price levels, taking at least some of your gains makes sense if you profit from the upside.
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