03/18/2024

Macroeconomic data published so far reflects, with some caveats, expectations that global economies will demonstrate resistance in the coming months, while the deflation trajectory is entering a slower phase. The central banks will also engage in a limited monetary easing process.

As for the weekly changes to asset prices, at this point nobody can doubt the surprising underlying strength demonstrated by the global stock markets. In fact, in a week in which weak activity data in the United States was combined with inflation data that was higher than expected and a sharp rise in crude oil prices, which led to a further delay in the expectations of a rate reduction by the Federal Reserve, the S&P 500 closed the week with practically flat performance.

This combination of “stagflation” data should not help either fixed-income markets or equity markets, but investor confidence has remained at its highest, thanks to growing demand for technological innovations such as artificial intelligence. In any case, there are still indications of investor exuberance that does not seem sustainable. For example, the “momentum” investment style, which basically consists of opting for shares that have shown the best performance recently, such as Nvidia, is experiencing an extraordinary push and are already the most significant commitment by US hedge funds. Similarly, the inflows of money to equity and cryptocurrency funds reached a new all-time high last week.

However, the S&P 500 closed with weekly drops of -0.14%, although in the Tuesday session, after the publication of the February CPI, which surprised on the upside, it managed to set a new all-time high. Since then, it has had three declining sessions. Sector performance left us with weekly increases in the oil and raw materials sector, which were joined by communication, consumer staples and financial services companies. On the other hand, there were significant drops in the real estate and discretionary consumer sectors.

As for the European stock market week, it was clearly bullish and the continent's main indexes recovered around 0.5% weekly on average, with better relative performance by the peripheral markets. They gained from the positive week for the banks, which happily welcomed the ECB's new framework, which will offer more incentives for banks to continue to lend to each other. The financial sector shared a leading role with oil companies. The “value” investment style, meanwhile, was once again the clear star of the European market week. The performance of the Spanish stock exchange deserves a special mention. After beginning the year weakly, it is gaining momentum, driven by the improvement of the profit expectations of Ibex companies. The good results presented by Inditex were particularly well received by investors.

In Asia, and particularly in China, the Hang Seng index, which began the week with significant gains, has been weighed down in recent sessions due to the difficulties experienced by the real estate developer sector, and with February's housing prices falling for the eighth consecutive month. Finally, the performance of the Japanese stock exchange stood out negatively, highly affected by the expected withdrawal of monetary stimuli by the Bank of Japan, around -2.5% of its weekly value.

As for the week that is starting, the Fed will face the dilemma of having to assess another inflation figure above expectations and, at the same time, acknowledging the recent economic downturn that, without being as evident as the one that led to Powell's change of discourse in December, could even the balance between inflationary risks and the risks of economic slowdown. Therefore a moderate speech by the chairman Powell on Wednesday cannot be ruled out.

Meanwhile, the strength of the market remains evident and the indexes have barely moved away from their all-time highs. We believe that the constructive position towards risk assets remains justified from the medium-term point of view, although we believe that the most beneficial position in the short term would be a consolidation of share prices at current levels.