Steadfast, global stock markets continue to climb

Posted on Apr 3, 2021, 7:56 AM

Always higher. World stock markets have accumulated records since the start of the year, driven by the prospect of a boom in economic activity in the coming months. The S&P 500 closed for the first time in its history above 4,000 points on Thursday, days after another record high for the Dow Jones Index.

Europe is not left out. The Dutch AEX index finally erased its all-time high from 2000, closing over 708 points on Thursday, while the German DAX moved above 15,000 points for the first time. The CAC 40 has, meanwhile, crossed the 6,000 point mark and is only a hair’s breadth away from its pre-crisis peak (6,111.24 points) as is the pan-European STOXX 600.

Investor optimism held up in the face of the rapid rise in bond yields in recent months. The prospect of a full recovery in the global economy has supported risk appetite despite a succession of accidents along the way, from GameStop to Archegos. Each bout of low prices is seen as a buying opportunity. The MSCI World Index, which includes all developed markets, has rebounded nearly 80% from its low point in March 2020 and is now up 20% compared to the end of 2019.

Stock market Europe dominates

It must be said that the annual results came out above expectations, and profit estimates for this year are constantly being revised upwards on both sides of the Atlantic, to + 36% for the STOXX 600 and + 26% for the S&P 500, according to UBS. “On the whole, companies have reduced their fixed costs well during the crisis period and see their margin prospects increase,” emphasizes Emmanuel Auboyneau of Amplegest.

The markets continue to benefit from significant support from central banks as stimulus plans take shape. Joe Biden recently unveiled a new $ 2.250 billion infrastructure investment plan, in addition to the $ 1.9 trillion support plan just voted on. The United States should therefore not surprise Europe in terms of economic growth this year.

But the more industrial and financial profile of European stock market indices is not well suited to a generalized recovery. “For large European companies, the global economy is ultimately more important than the economic outlook in their respective home countries,” says DWS.

Slowdown in equity fundraising

As a result, despite the recent introduction of new restrictive measures to combat the third wave of the epidemic, stock market Europe has shone since the start of the year. The Euro Stoxx 50 has gained more than 11% since January, against an increase of 7% for the S&P 500 and of 4.5% for the high-tech Nasdaq, further penalized by the rise in long rates . Among the best performances in Europe, we note the surge of Volkswagen (+ 58%), the DAX’s locomotive, which seduced the markets with its offensive in the electric sector. At the sector level, banking and tourism stocks performed well, with increases of nearly 20% in the STOXX 600.

After such performances, some professionals expect more erratic movements of the stock indices. To “avoid a period more conducive to volatility and the reconstitution of risk premiums”, the managers of Edmond de Rothschild AM have thus reduced their allocation to equities.

More generally, investor fatigue is beginning to emerge. Equity funds have raised more than $ 350 billion since the start of the year, including a record nearly $ 90 billion for listed index funds in March. But the pace has slowed sharply, with the lowest fundraising for equities since December 2020 over the week to March 25, and the highest fundraising for money market funds since April 2020, according to Bank of America.

Joe Biden wowed the markets

Unlike his predecessor, Joe Biden rarely talks about Wall Street’s performance. Yet he has nothing to envy her. On the contrary, the S&P 500 climbed 4.6% between its inauguration on January 20 and March 31, more than during the first fifty sessions under Donald Trump (+ 4.4%) or Bill Clinton (+3, 8%). At the other end of the spectrum, George W. Bush began his mandate with an almost 15% drop in the S&P 500, penalized by the bursting of the Internet bubble. Barack Obama, who became president in the wake of the 2008 financial crisis, saw the S&P 500 lose 6.1%.

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