Market expectations were tempered by the Fed’s warning

[Article publié le 10/11 à 17h21, mis à jour à 18h10]

The euphoria was cut short. While the CAC 40 had returned to the high of October 11, at 7,114 points, closed on Thursday evening, the confidence of American but also European investors was dampened by Jerome Powell, the president of the US Federal Reserve, who said on the same evening we will not hesitate » further increase the policy interest rate “ If necessary » in light of high inflation.

A warning that caused European stock markets to plummet on Friday. For example, the German Dax index closed at -0.77% at 6 p.m., while the Paris index and the British FTSE 100 lost 0.96% and 1.28% respectively. On the American side, the S&P 500 lost 0.81% on Thursday evening while the Nasdaq fell 0.94%.

Investors are tempted by taking profits

However, the central banker’s speech is not worrying and remains full of conditions. “ Hardly anyone believes in a rate hike in December, but this new announcement raises fears that key interest rates will remain high for a long time », explains Alexandre Baradez, market analyst at broker IG France.

So this new uncertainty is not meant to scare the markets… This does not take into account the fact that the latter will arrive later. a stock market rally not seen in two years, with nine consecutive sessions of gains on the US technology index Nasdaq (and a CAC 40 up 5% between November 27 and 9, editor’s note) », recalls Antoine Fraysse-Soulier, market analyst at eToro. It therefore took little for investors to decide to take their profits, especially since “ we are in the last month of the year so investors are very active to close out their gains before December 15th », adds the eToro analyst.

November marks a bullish rally

Underlying the recovery in November: a better-than-expected third quarter earnings season.

After a bad start and disappointments surrounding large companies such as LVMH, Worldline in France and Tesla in the United States, many companies have finally shown that they are more resilient. Of the 39 CAC 40 companies that released their quarterly results, 36% showed performance above analyst expectations, 41% responded in line with expectations and 23% disappointed consensus. That’s not so bad compared to the fears we had after the first signs of economic slowdown », acknowledges Antoine Fraysse-Soulier.

Global economy: bad signals multiply against a backdrop of tensions in the Middle East

But above all, the pause on the policy rate hike decided by the Fed at its October 19 meeting, combined with an accommodative speech, reassured investors, leading to a decline in bond yields. While 10-year US Treasury yields topped 5% on October 19 – setting a monthly low for the stock market – yields gradually fell after the Fed’s announcement of a pause to settle around 4.6% this Friday. stabilize.

However, bond yields are very important data for the stock market because they affect the entire economy. », says Julien Quistrebert, equity manager at Taylor Asset Management.

In periods of high interest rates, the cost of debt actually increases, which tends to hurt corporate results but also reduce the calculation of their valuation, partly based on government bond yields.

Until yesterday’s session, markets expected the difficult times for business to end in 2024. A hope that the Fed president quickly dashed by reminding on Friday that his restrictive policy was far from “finished.” “ Powell, on the other hand, maintains a restrictive speech to raise bond rates and that the latter will slow the economy and curb inflation without the need to implement another increase in the base rate. », interprets Alexandre Baradez in particular. Uncertainty should therefore still weigh on markets at the end of the year, which fluctuate between hope and fear.