More Fear than Harm on the Markets

More Fear than Harm on the Markets

One month, the major indices were dropping sharply, caused by a lack of sustained growth in the eurozone. Today, there is not a sign of retreat on the markets.

On November 11, the S&P 500, the benchmark index of the New York Stock Exchange, even beat yet another record – historical, if it is still necessary to specify – in closing over 2039 points… Suffice to say that one must have a really strong stomach to invest in stocks these days. Traders and other managers do not get their hopes too high for now, anyway. They barely regain their confidence by the end of the year, after the ups and downs of October that had indeed made traders dizzy.

As a symbol of dithering, the major financial centers have almost all been treading water this week: Monday 10 to Friday, November 14, the CAC 40 has scrounged 0.30% while London’s FTSE gained 1.33% and the German Dax lost 0.42%. In the US, the S&P was awarded 0.39% and the Nasdaq index of technology stocks 1.21%.

The reasons for angst? It is a jumble, renewed geopolitical tensions in the Ukrainian conflict and renewed concerns about the Eurozone growth. On Friday, the publication of an increase of 0.2% of gross domestic product (GDP) in the euro area in the third quarter, according to preliminary estimates released by the European statistical office Eurostat, was greeted with mixed feelings. On the one hand, it is better than expected by analysts, who had forecast 0.1%. On the other side, it is still very modest. Too small to hope to end the economic slump in which the Old Continent continues to struggle.

But markets prefer, for now, to see the glass half full. In this matter, the financial performance of their companies provides a good excuse. Including the United States, where almost all the companies in the S&P 500 have released their quarterly performance. They are on average 3% to 5% above the consensus of analysts. And forecast growth of nearly 3% in the United States for 2015 leads hopes in the same direction.

In Europe, the signals are much less reassuring. The consensus of analysts provides for the benefits of the CAC 40, about 72 billion euros, an increase of 50% compared to the previous year. Optimistic or unrealistic? It is still difficult to determine. “The weak energy prices combined with that of euro should support European equities,” said for his part Hoir The Mathieu, strategist at Axa IM. The decline of the single currency, favorable to exporting companies, should indeed begin to bear fruit in the early 2015 accounts.

Beyond these microeconomic considerations, investors rely mostly on their main incentive: the accommodative monetary policies. If the United States, the Federal Reserve (Fed, central bank) has halted its program of asset purchase, as planned, in October, the Bank of Japan (BoJ) and the European Central Bank (ECB) will in quick succession restart printing money.

“It’s like a relay race: thanks to the announcements of BoJ and the ECB, there is no dead time in the markets in terms of liquidity. Investors love it,” says L’Hoir. Accordingly, “the aggregate balance sheets of major central banks will grow about 10% in 2015, as in 2013 and in 2014,” Mr. L’Hoir believes. This monetary crutch should support markets that still have their eyes riveted widely on macroeconomics.

But some operators are already exerting caution. According to a study published by State Street manager on November 13, the retirement funds are increasingly likely to manage their own financial assets; before, they used to entrust it to external service providers.

This challenged hundreds of funds managers worldwide. “At the root of this change, the challenge of getting an overview of the risks,” the study said. But also the desire to reduce costs for these financial behemoths whom officials, teachers or private sector executives entrust the management of their retirement and health insurance.

The trend has already resulted at least one dramatic hedge funds selling. In September, the officials of CalPERS, the pension fund that manages the pensions of California, announced that the company would sell all of its shares in hedge funds, some 4 billion dollars of investment…

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