By reducing its key rate by 0.5 points to bring it back to a range of between 4.75% and 5% on Wednesday evening, the American central bank has clearly started its cycle of monetary easing and responded to the most optimistic expectations of investors.
While the principle of a reduction was confirmed, its extent remained uncertain. The Fed considered that the inflationary risk had diminished and that, on the other hand, the labor market in the United States constituted a point of vigilance, while remaining solid.
Soft landing
Investors could have interpreted a 0.5 point drop rather than a 0.25 point drop as a sign of concern about the state of the American economy on the part of the Federal Reserve. This is also the feeling given by the scattered evolution of the indices on Wall Street yesterday evening. It is true that the bond market paradoxically did not react particularly well with a rise in the yield on 10-year Treasury bonds in the 3.70% zone against 3.65% the day before.
In Europe, on the other hand, the rosy scenario of a soft landing against a backdrop of falling rates continues to be favoured on the stock markets.
Growth and cyclical stocks join the party
In Paris, the CAC 40 index rebounded by almost 2% this Thursday at mid-session, ahead of the German Dax index, up by more than 1%. Apart from defensive stocks such as Engie Or Orange which had performed rather well in recent weeks, the entire Paris stock market is sucked in by the start and the scale of the monetary pivot of the American central bank.
Growth stocks like Hermes And LVMH in luxury, but also Airbus And Saffron in aeronautics or Dassault Systems in technology are particularly sought after. They are in fact valued by the discounting of their cash flows. The lower the rates used for this discounting, the more the theoretical value of these shares with a strong growth profile increases.
But at the same time, the boost to the economy given by central banks through their monetary easing also benefits cyclical stocks such as Stellantis, Valeo, Forvia Or OP Mobility in the automobile, Publicis in advertising, Eramet in raw materials…as well as in consumer values (Beneteau, Trigano, Carrefour…).
Keep a cool head
Once the euphoria has subsided, investors will probably return to greater rationality, given that risks remain regarding the state of the American economy and that not all sectors are facing the current economic slowdown in the same way.
Real estate, which has already rebounded well in anticipation of rate cuts, still appears to have some potential for revaluation.
For their part, luxury stocks have probably recently reached a low point with valuations that have become more reasonable again. Visibility, however, remains limited for the most cyclical segments of the market, which should be analyzed on a case-by-case basis.
