In this world, which we readily liken to the “financial metaverse”, it is the price that “makes” the value, and not vice versa… The short term is definitely superior to the long term. Everything is sacrificed in the short term: household savings are meant to support consumption, government credit is used to support purchasing power, the human capital of companies is sacrificed for short-term “surplus returns”. What we consider to be short-term excesses must be justified in one way or another. Thus, this very optimistic scenario is based on the assumption that both the real economy and the financial economy will experience a soft landing.
The idea of absolute central bank foresight is firmly ingrained in the minds of market participants. They believe that the Fed will be able to “calm down” the economy, i.e. it is sufficient to reduce inflation without having too much and too long an impact on growth. In this case, inflation should quickly reach Fed rates and fall lower during 2023. Companies, for their part, have already begun work on cost adjustments to keep margin rates at the right level, justifying a price recovery. And let’s foresee a new rise when the Fed decides to cut rates. This scheme, which minimizes the suffering of a recession and places a high value on future rate cuts, seems highly dubious to us. It is clearly based on maintaining consumer optimism, which will be tested on Thanksgiving. The American tradition of Black Friday, and now Black Friday Week, will measure consumer psychology, which certainly remains the cornerstone of the bullish scenario.
It is the psychology of players in the real world and especially in the financial sector that remains the key to the markets. Thus, maintaining a good atmosphere on Wall Street despite a negative year is essential. And it doesn’t seem obvious to us. As a result, S&P 500 remains below 1-year moving average despite last 7 weeks rebound, in contrast to the CAC 40. Moreover, the current rise was accompanied by a drop in volumes, as during the summer bear market rally. There is still about 4% to go before the S&P 500 crosses its one-year moving average, which is currently at 4180 points. As for the Nasdaq, it should rise by about 8% before it exceeds the annual average. This doesn’t sound like a foregone conclusion at all…
Investor recommendation: We remain heavily undervalued as the CAC 40 is above 5650.
Trend in interest rates and foreign exchange markets: government bond rates fell in France (2.3%) and in the US (3.7%). The euro rose again, up 0.7% for the week.
Recent Commodity Trends: Oil prices fell again by 4%.