Euphoria at the Paris Bourse, where records were chained two days in a row. Worn by the inflow of liquidity on the markets and the improvement in the health situation, the CAC 40 beat, Tuesday November 2, a historic record at the close by reaching 6,927.03 points. The next day he beat his absolute record in session, at 6,949.57 points. In both cases, the previous records dated back to the internet bubble of the year 2000. How can this increase be explained?
Plenty of cash
First factor: the abundance of available money. “There are a lot of savings”, explains to franceinfo Philippe Waechter, director of economic research at the bank Ostrum Asset Management. Since spring 2020, money has been flowing freely on the financial markets thanks to exceptional support measures from central banks. These have injected around a hundred billion dollars per month into the economy for a year and a half.
This abundance of liquidity enabled stock market indices to make up for the losses recorded. While in March 2020, the CAC 40 had fallen to 3,632.06 points at its lowest in session, on March 16, it is now flirting with 7,000 points. “The action of central banks has benefited all equity markets”, also assures AFP Jean-Patrice Prudhomme, director of the allocations and management division at Milleis Banque. “More liquidity means less financial stress, more financing at low interest rates and a much higher return on equities than on bonds”. As in France, Germany and the United States, the star indices have already improved their record.
A French market driven, among other things, by the values of luxury and industry
Second factor that has pushed the Paris Stock Exchange upwards: the good performance, since the start of the year, of CAC 40 values (index calculated from the main French capitalizations). Et in particular those of luxury goods, which weigh more than a quarter of the price. The global luxury giant LVMH, which alone represents nearly 15% of the capitalization of the CAC 40, has indeed taken 34% since the start of the year and Hermès, 59%. L’Oréal, which accounts for around 10% of the CAC 40, jumped 29%. This explains why the CAC 40 has been doing a little better since the start of the year than the other major European or American markets.
Other companies also stand out for their good results. Industrial stocks such as Saint-Gobain (+ 63% since January 1) and ArcelorMittal (+ 52%) have benefited for their part from the reopening of economies and the rise in the cost of raw materials. At last, “despite what may happen in Glasgow (in Scotland, where the COP 26 is being held), investors are optimistic about technology stocks “, notes Philippe Waechter. This rise in equities comes against the backdrop of growing exceptional 3% in the third quarter of 2021, which allowed the French economy to return to its pre-health crisis level at the end of the summer.
Investors rather reassured by the role of central banks
More broadly, argues Philippe Waechter, “There is a favorable environment, with rates which are very low. And everyone has the feeling that central banks will remain very active, no matter what.”. According to him, central banks, and in particular the American Central Bank, will try to control inflation, which in September was 4.4% over one year in the United States, the highest since 1991.
“Investors now have the feeling that the Fed (the Federal Reserve, Central Bank of the United States) will not let inflation develop, which it wants to control “, he comments. The Fed should indeed announce, on Wednesday, the gradual reduction in its support for the economy, a highly anticipated measure when inflation appears higher than expected. The economist also believes that central banks will not take a sudden turn that surprises investors. It thus excludes a too sudden rise in interest rates.
“Central bankers don’t want shock, they want soft interventions. Today, the US Federal Reserve is communicating a lot about what it’s going to do, so no one is surprised.”
Philippe Waechter (economist)to franceinfo
The markets thus have a certain visibility. Same opinion on the side of Jean-Patrice Prudhomme, director of the allocations and management division at Milleis Banque, quoted by AFP: “We expect that the evolution of monetary policies will be very gradual and therefore not necessarily penalizing for the markets”.