After the euphoria, the markets won over by doubt

Posted on Dec. 2020 at 4:00 p.m.Updated 13 Dec. 2020 at 16:32

The exceptional rise in stock market indices in November already seems far away. After five consecutive weeks of increase, the CAC 40 has yielded 1.81% in recent days. Concern also dominated Wall Street, where the S&P 500 and the Nasdaq recorded their biggest declines since October.

To resume the upward path, markets need “Better visibility on the efficacy and safety of vaccines, the pace and extent of fiscal stimulus, and the reduction of political uncertainty”, note the strategists of Edmond de Rothschild. However, the week was marked by disappointments on all of these points. Investors had to digest the announcement of the delay taken by Sanofi and GSK in the development of their vaccine. On the political level, negotiations on a new American stimulus plan are struggling to take off, while in Europe, uncertainties over the outcome of Brexit remain unresolved.

More selective investors

In the stock market, investors have become more selective, which has been costly to STMicroelectronics and CD Projekt. French semiconductor maker STMicro ended the CAC 40 red lantern this week with a 14.5% decline after pushing back its financial targets for a year. Polish video game publisher CD Projekt posted the biggest drop in the Stoxx 600, a drop of 27.65% over the week. The release of his latest game was marred by many bugs on consoles.

The renewed worries in the markets have resulted in a rise in the VIX, nicknamed the “fear index” because it measures volatility. While it has remained at a high level since March, its rebound this week halted its downtrend since late October. However, it is very rare for the VIX to be at such high levels when Wall Street is at its highest. The last similar period dates back to the dot-com bubble, according to data compiled by Bloomberg.

POI fever

The frenzy generated by the recent IPOs across the Atlantic accentuates the impression of déjà vu for many professionals. The delivery company Doordash saw its price jump 86% on the day of its IPO, while that ofAirBnB more than doubled. The gap is extreme between the valuations reached by these companies on the markets and those obtained a few months earlier from private investors. AirBnB had raised $ 2 billion in debt in April on a valuation of around $ 18 billion. The group is now worth more than 80 billion on the stock market.

On average, companies that went public this year gained more than 40% on the day of their listing, excluding PSPC, a level not seen since 2000, according to Professor Jay Ritten of the University of Florida. And this, even though 80% of the companies in question were not profitable in the twelve months preceding their IPO, again at a record level outside of 2000 and 2018.

This euphoria, which is partly disconnected from the fundamentals, is cause for concern for professionals. According to Larry Fink, the current IPO fever is not “Not sustainable”.“The question is, does the market reflect too high a future growth rate for these companies? “ he said at a virtual conference held this weekend. For the boss of BlackRock, the world’s largest asset manager with $ 7.8 trillion in assets, the answer is not in doubt: “There will be a lot of accidents”, he warned.

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