(News Bulletin 247) – The Parisian index has defied expectations at the start of 2023, progressing at an impressive speed despite a little respite in recent days. To the point of crossing the unprecedented threshold of 8,000 points this year?

The CAC 40 had already crossed the 6,000 point mark in 2000, a little less than 13 years after its creation. It then took 21 years and a series of crises (burst of the internet bubble, subprime, sovereign debt in the euro zone, Brexit, health crisis) to exceed 7,000 points. What about the 8,000 points?

The excellent start to the year 2023 for the CAC 40 suggests that this course could be reached in a relatively short time. Since January 1, the Parisian index has risen nearly 13%, with its best performance in the month of January. It even reached a historic high in the session, at more than 7,387 points, two weeks ago.

Several factors are at the origin of the rally, in particular an improved economic situation, expectations of monetary tightening by the major central banks less significant than at the end of 2022, or even generally satisfactory corporate results.

Lower gas prices in Europe

“The fall in energy prices in Europe has fueled the rise in the markets. Households have become aware of the problem and have reduced their consumption, the most energy-intensive industrialists have also made efforts and LNG supplies [gaz naturel liquéfié, NDLR] have increased significantly”, also underlines Nicolas Descoqs, manager at Clartan Associates. “This has brought gas prices down to nearly 50 euros per megawatt hour against peaks of more than 300 euros last September. This setback has removed the specter of recession in Europe and could continue to support the market.

Can the CAC 40 continue at a sufficiently sustained pace to cross the 8,000 point level this year?

“I think they are imaginable” this year, said Thursday on BFM Business, Olivier Flornoy, director of collective management at Flornoy. The manager notes that the probability of a deep recession is “fading” and that the earnings season in Europe has been good, with 60% of positive surprises, and earnings per share growth forecasts which have been revised at the rise. “I am realistic and optimistic (…) I think there is room”, he considers.

“Achieving 8,000 points this year for the CAC 40 is possible even if it will obviously not be done in two weeks”, replies, for his part, Nicolas Descoqs. “In theory, the CAC 40, like other equity markets, all things being equal, should grow by around 10% over one year. Following this logic, the CAC 40 should be very close to 8,000 points at the end of 2022, and this without counting potential good surprises, such as the end or a lull in the conflict in Ukraine”, develops the manager.

In addition to a prolonged lull in gas prices, “the market has already priced in a good chunk of China’s reopening, but again there’s still some potential on that factor,” he notes.

First a breath?

For John Plassard, investment advisor at Mirabaud, reaching 8,000 points this year is “completely within the realm of possibility”. “However, with a problem: it is absolutely necessary that the consensus adapts to the ‘hawkish’ discourse [restrictif, NDLR] of the European Central Bank, which is not yet the case, the expectations being too complacent”, he develops.

For the expert “consolidation” could thus be observed before, after this breath, the market starts again clearly ahead. He cites as “drivers” of this rise the gradual decline in inflation, the pause in rate hikes by central banks and the reopening of China. In addition, the economic situation could improve further and support business results. “When we look at the PMI indices and the new orders we see that they are not collapsing and therefore the recession, if there is one, could be very short”.

Conversely, Vincent Boy, market analyst at IG France, wants to be much more cautious. “Reaching 8,000 points is not impossible but it seems a bit excessive, the CAC 40 is hitting its historic highs, and the upward movement is driven by luxury which is evolving on high valuations”, he judges. .

“We are talking about a rebound in China, but the reopening of the Chinese economy will not happen in one go, in the short term”, develops the analyst.

The war in Ukraine as a point of attention?

Especially since certain risks could again appear on the horizon. Vincent Boy cites several. “We realize that inflation will take time to come down, and consequently the tightening of monetary policy, without necessarily being more aggressive, could take longer with necessarily an impact on the economy. The threats of recession thus risk to come to the surface faster than the market expects, while valuations remain stretched,” he said.

Moreover, even if gas prices have fallen “we will have to replenish stocks for European countries”, adds Vincent Boy. “Even if it was done last year without concern at high prices, this year it will be necessary to take into account a supply from Russia which will be at 0”, which risks creating tensions, he continues. “All these issues will come back to the surface,” he warns.

All the interlocutors questioned agree on one point: the evolution of the war in Ukraine, sometimes wrongly forgotten by the market, must be scrutinized. “We will also have to monitor Ukraine, which remains a potential positive and negative risk factor depending on the evolution of the conflict”, underlines Nicolas Descoqs.

Another major element to look at prices, according to him: employment. “The major risk to be monitored so that the rise can continue remains inflation and in particular the labor market. It must stop tightening to prevent a wage-price loop from occurring which would fuel the rise in prices and risk to postpone the end of monetary tightening by the major central banks”, warns the manager.