The Federal Reserve of the United States dampened hopes of a year-end with fanfare on Wall Street, as on all the world’s stock markets.
The Federal Reserve of the United States dampened hopes of a year-end with fanfare on Wall Street, as on all the world’s stock markets. The S&P 500 and Nasdaq indices fell sharply in the middle of the week, without really managing to rebound afterwards. The American central bank did lower its key rates by 25 basis points in line with expectations, but its representatives were very cautious about continuing the easing. This cooling of the Fed can be explained by persistent inflationary pressures which do not allow us to take the risk of hastening the easing of credit conditions. Economic growth also remains as strong as ever, with American GDP increasing by more than 3%. Under these conditions, the Fed panel suggested that it would be more appropriate to slow down the pace of monetary easing, with only two rate reductions in 2025, while the majority of analysts were instead banking on four reductions per year. next.
Healthy and well-meaning minds might have thought that the strength of economic activity in the United States constitutes good news for American companies, and therefore for Wall Street. However, this is not how investors think. There is in fact a close link between the level of interest rates and the valuation of stocks. The lower these are, the less interest there is in investing your savings in bonds whose yields are weakening. It is therefore possible to agree to pay a little more for the shares of companies that have everything to gain from seeing the price of silver decrease. On an American market, where stocks trade at around 30 times expected annual profits, any downward revision of expectations for a reduction in interest rates could only be poorly received.
European stocks fortunately managed to cushion the shock. With a decline of 1.22% in the CAC 40 on Thursday evening at the close and of 1.58% for the Eurstoxx 50, the day after an impressive fall of 3.65% in the Nasdaq Composite index, they reached sort things out. Unlike the United States, where the era of an unconditionally accommodative policy from the Fed is no longer relevant, the visibility on the monetary policy of the ECB does not suffer from any ambiguity on the pursuit of its strategy. relaxation of its key rates in 2025. The relative resistance of our market can also be explained by the significant delay in the valuation of euro zone equities which display multiples almost twice lower than those in force on Wall Street. Growth is certainly less strong on this side of the Atlantic, but our businesses are starting to benefit from the rise in the dollar leading to substantial exchange rate gains.
The European rating fortunately has some arguments to put forward. In recent days, however, we have preferred to cut to the chase. During Wednesday’s session, while the fall of Wall Street had not yet fully occurred, we decided to immediately take all of the profits accumulated on our American trackers, in particular the famous Amundi PEA S&P 500 and Amundi PEA Nasdaq 100. Two positions from which we fully benefited while the CAC 40 was attacked. We had also started to significantly reduce positions on many stocks, such as Hannover Re and Aegon in the Defensive portfolio, as well as on Kering, Air Liquide, Eramet or on the German engine manufacturer MTU Aero Engines in the Offensive. Part of the cash generated was reinvested in Hermès International, Airbus and Renault.
Ultimately, our portfolios were not spared from the correction, but overall they held up well. While the CAC 40 has fallen by almost 5% over the last six months, our best performance is recorded by our Defensive portfolio which has fulfilled its role of protecting invested capital, with a gain of 0.87% over the same period. . Also positive performance (+0.59% over six rolling months) for our World selection, made up of international ETFs diversified at the European level, as well as on the New York Stock Exchange in Asia. The resilience of the World portfolio shows that asset diversification remains the best way to take advantage of the best investment opportunities during periods of rising markets and to protect your back when the trend deteriorates. With a decline limited to 0.91%, our selection of ISR/PEA funds managed very prudently and based on a basket of low-speculative companies also offered good resistance to the market decline. The Offensive portfolio, down 1.92% over the last six, comes in last position, which is not surprising for resolutely aggressive management. This is the price to pay for implementing a dynamic strategy. Our risk-taking, however, remained reasonable, since it did not lead to any uncontrollable loss thanks to our intangible management principle consisting of never allowing losing positions of more than 20% to run.
Ultimately, our portfolios were not spared from the correction, but overall they held up well.
What strategy for the weeks and month to follow? Next week, our weekly update will be devoted, as we always do before New Year’s Eve, to a detailed analysis of our annual performances. This review will be an opportunity to review the allocation choices we made throughout the year. Particularly on the diversification of our assets outside the CAC 40, from the beginning of June when it was clear that Emanuel Macron’s decision to dissolve the National Assembly was going to penalize the Parisian rating. But also the errors made, with choices of values that were not always very relevant and above all the implementation of a strategy of excessive caution during the first months of the year having deprived us of a good part of the increase in markets took place from January to the end of March. Starting from the principle that we learn as much from our failures as from our successes, this look back promises to be rich in lessons. Our strategy for 2025 will be developed in our update on Friday January 3. The idea will not be to communicate, as some management houses haphazardly do, our CAC 40 price objectives for the end of the following year, but to propose strategic investment areas for the first quarter. The sectors to favor and above all the opportunities presented by good geographical diversification of your investments. The recent decline of the CAC 40 compared to most of the world’s major stock exchanges shows that it is now necessary to think differently about how to manage your PEA. For now, until December 31, we are maintaining a resolutely prudent management strategy, maintaining a high level of liquidity in all portfolios.
Happy reading and happy Christmas holidays to all,
Roland Laskine
