“During the first weeks of November we have witnessed a radical change in sentiment in the European and US stock and bond markets. Thus, and after three months of falls, in which the main stock indices of these regions entered into technical correction, after losing more than 10% from their annual maximum levels, marked at the end of July, the markets have turned strongly to the rise, with many of these indices currently on the verge of exiting the corrective phase; In fact, the Nasdaq Composite has already done so, having appreciated 11.7% during the first half of November from its recent lows,” Link Securities highlights.
“The most likely thing is that the bullish inertia of the last 3 weeks will dominate, although with a tendency to consolidate levels, once the rise in bond IRRs has been neutralized in an apparently reliable manner,” agree Bankinter (BME:BKT ).
Behind this 180-degree turn that the markets have taken there are several factors. Among them link Securities highlights the following:
The disinflation process has continued at a good pace, with inflation in the largest developed economies reaching its lowest levels of the current cycle, far from its recent highs.
Investors assume that central banks have already ended the process of raising rates.
Part of the market is beginning to discount that central banks will begin to reverse the increases in their official interest rates during 1H2024.
There are high expectations that the Federal Reserve (Fed) will achieve the goal of a “soft landing” for the US economy and that in the Eurozone the recession will be limited to a few countries, including Germany, and will be quite mild.
“Until just a few months ago, the scenario that investors were dealing with was diametrically opposed, since they were betting on persistently high inflation, on interest rates that would continue to rise and remain high for a long time and, consequently, on the entry into recession of the main developed economies”, highlights Link Securities.
“It is better not to ignore a market that wants to continue rising, surely thinking about positioning itself for 2024,” they add at Bankinter.
“That is precisely what we believe needs to be done now, before it is too late. Because for everything there is a best time. Positioning for 2024 may be now, because then the situation could become somewhat confusing throughout 2024, especially as the American elections in November approach... for which, with current information, it seems that Trump will be the Republican candidate. And his hypothetical victory would mean risky changes in the current delicate geostrategy,” these analysts conclude.