Investing.com - European markets start October in the green -Ibex 35, CAC 40, DAX...-, pending important economic data and central banks' rate strategy. In this last quarter of the year, the experts recommend caution.
"The markets seem to be beginning to digest the risk of weak growth (even recession in economies such as Germany) in the face of macro data that is gradually reflecting the gradual impact of the intense rate hikes", explained Renta 4 (BME:RTA4).
"We reiterate our caution in a context of economic slowdown (with a growing gap in favour of the US and against Europe and China) but with inflation still far from the central banks' 2% target (which is not expected to be reached until 2025)," they add.
High rates to stay longer
"This scenario reaffirms our view that, although the end of rate hikes is near, the start of rate cuts will still be delayed and will be smaller than initially expected, as confirmed this week by the Fed with the upward revision of its dot plot. This scenario of higher rates for longer will continue to weigh on the economic cycle and, foreseeably, on corporate earnings", argue Renta 4.
"While it is true that there has been an upward shift in 2023 EPS revisions, especially in the US due to the increased probability of a soft landing, it remains to be seen whether the evolution of the cycle in the future will allow us to meet the EPS expectations for 2024, which could be somewhat demanding," these experts point out.
Consolidation phase in the markets
"Rather than facing major problems, the market lacks immediate stimulus. That is not serious. But that should lead to an atonic phase, of waiting, of consolidation, perhaps somewhat erratic, but not of setbacks", warn Bankinter (BME:BKT).
"Inflation/rates, economic growth and market expectations. These will be the 3 basic keys until December," the bank's analysts point out. "That and stock market valuations that continue to offer attractiveness, albeit not explosive," they add.
"Inflation will continue to recede, but rates will take longer to come down than is generally thought. It will not be easy for inflation to fall below 3%, even in 2025. And we do not expect it to return to the central banks' 2% target even at the end of that year," they add.
According to Bankinter, "the market needs to rest periodically and that is no drama. In this type of phase, you have to keep a cool head. For a while it will be characterised more by consolidation than by further resounding advances".
"The first 2/3 weeks of October may prove to be disorienting and even somewhat saddening in the face of a probable lack of firm direction due to a lack of incentives rather than facing serious problems. While the market settles, we propose to reduce some exposure to technology in favour of banks, insurance, utilities and even oil companies, tactically, only for a while, not strategically", add Bankinter.
"Let's keep in mind that the scenario we are now entering makes a lot of sense from an investment point of view: real estate may cool down a bit, but both stocks and bonds offer positive expected returns, even in real terms (i.e. discounting inflation)," these experts conclude.
Translated from Spanish using DeepL.
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