CAC 40: Central banks reassure, focus on Q1 results – March 25, 2024 at 08:53

The mood on the markets has not changed much in recent weeks, with operators remaining focused on the exciting prospects of artificial intelligence, on the results of generally good companies and on the persistent hopes of future rate cuts in both sides of the Atlantic.
The major indices are thus continuing their frantic race for records, evading geopolitical tensions, the sharp rise in oil prices or even the slight rise in American inflation.

The consumer price index stood at 3.2% (compared to 3.1% previously) while the producer price index increased twice as much as expected in February (+0.6%), i.e. an increase of 1.6% in annualized rate (2.8% excluding food and energy). These data raised fears that the first rate cut would be postponed in the United States, but the Fed clearly reassured, after its status quo.
Inflation is falling “gradually” and the latest figures do not call into question the central trajectory. Three reductions are expected this year, the first in June. The institution therefore seems able to lower its rates even if economic conditions are solid.
The ECB should also follow suit, with a first rate cut in June, given the decline in inflation, which fell to 2.6% year-on-year in February in the euro zone.
The Bank of Japan, for its part, raised its rates for the first time since 2007, with rates going from -0.1% to the range 0 to 0.1%. It is therefore a symbolic act, made possible by the rise in inflation after a long deflationary period.

At the same time, company results continue to support the buying trend. S&P500 companies reported profits up 4.1% for the fourth quarter of 2023 and the outlook remains encouraging, with profits expected to rise 11% for the whole of 2024.
Although they have been revised downwards, profits for the first quarter should increase by 3.3% according to the Factset consensus (compared to 5.7% at the end of December) but by 9.1% for Q2. The results season which begins mid-April will therefore be informative and could be a source of volatility, while the P/E ratio of the S&P500 is around 20.6, well above the 10-year average (17.7).

The strong rise in indices in recent months therefore calls for caution, even if the economic prospects of companies and the change in trajectory of central banks constitute a catalyst for this movement. Operators could quickly be tempted to take some profits.

Graphically, the CAC 40 follows a positive direction on all time scales, evolving at its zenith, around 8200 points.
Over one month, some of its components again achieved double-digit performance. Renault garners 21.9%, Airbus 16.1%, Stellantis 15.3%, Thalès 14%, BNP Paribas 12.3% and Axa 11.9%. We will nevertheless note some bad students. Téléperformance drops 34%, Kering loses 13.8%, Pernod Ricard 6%.

In daily data, the CAC40 follows a clearly positive trend above the symbolic threshold of 8,000 points. The reaction of the index in the 8250 points zone could be decisive. Crossing this level would release new appreciation potential towards 8400 points. In the event of failure, we could on the contrary expect some profit taking which could bring the index back towards 8000 points.
However, the underlying dynamic will not be degraded and only the sinking of 8000 points would constitute a first bearish signal, militating for the start of a more marked consolidation towards 7930 points then 7800 points.
This beneficial consolidation would also be an opportunity to return to lower-risk purchasing.

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