(News Bulletin 247) – The CAC 40 GR index, which assumes that the dividends paid are reinvested in the securities, is currently moving to its highest levels ever. Like the traditional CAC 40, it is benefiting from rather good prospects for companies and expectations of a pause on Fed rate hikes.

It is a barometer that we sometimes tend to forget. But which nevertheless shows the vigor of the current trend: the CAC 40 GR.

As a reminder, the “GR” in this index stands for “gross return”. Behind this somewhat sibylline name, the CAC 40 GR reflects a fairly simple reality: how does the CAC 40 behave if we assume that the dividends are reinvested? Remember that the CAC 40 is based on prices that “correct” the dividend, recalculated once the dividend has been detached. For example: if a CAC 40 share quotes 60 euros but pays a dividend of 1 euro per share a day later, the CAC 40 will continue to take as a basis for calculation a price – all things being equal – of 59 euros.

If the CAC 40 therefore does not include the dividend in its calculation, this is not the case of the German DAX 40 which takes it into account. The CAC 40 GR assumes, like the overseas index, that the dividends paid by CAC 40 companies are reinvested by shareholders, thus giving a more complete measure of the profitability of the shares.

For these reasons, it is advisable – including by the Epargne info service platform of the Autorité des marchés financiers – to look not at the CAC 40 but at the CAC 40 GR to get a clear idea of ​​the long-term performance of a investment in the CAC 40, via, for example, a UCITS (undertaking for collective investment).

A good trend

The CAC 40 GR is currently evolving on a good trend. The index broke a record both during the session and at the close on Friday, at 22,432.75 points and 22,338.53 points respectively. This Monday, the CAC 40 GR is not very far from these recent highs, taking 0.2% to 22,386.39 points. And over the whole of 2023 it shows an increase of 17.9%, against 15.7% for the “ordinary” CAC 40, thus showing a difference of more than two percentage points.

“The evolution of the CAC 40 GR is another indicator that illustrates that we are in a bull market phase. It may also contain interesting technical elements”, explains Alexandre Baradez, head of market analysis for IG.

If the CAC 40 GR gives the market another thermometer, considered more reliable, of yield, its rise drivers are the same as those of the “ordinary” CAC 40. “Dividends do not influence the trajectory of the CAC 40,” recalls Alexandre Baradez.

The market analyst points out that the uptrend now seems to be well anchored. “The earnings forecasts for CAC 40 companies in the second quarter remain correct, which gives confidence, and for S&P 500 companies, we are expecting improved profits over the same period,” he said.

The US debt ceiling is not too worrying

“At this point equity markets are not overly concerned about issues surrounding the US debt ceiling, and investors believe the Federal Reserve [Fed] US will begin a pause in its rate hikes. The statements this weekend from Neel Kashkari, the president of the Minneapolis Fed, are rather likely to reinforce this hypothesis.

Neel Kashkari, a member of the Fed on the side of the “hawks”, i.e. the central bankers more favorable to a restrictive monetary policy, told the wall street journal that he could support a status quo on rates at the next meeting in June.

These anticipations of the Fed’s pause, however, come as recent economic statistics in China have proved disappointing, while those in the United States point to a slowdown in the economy. “We will have to see what the market will put forward in the coming days: will it first retain the less favorable macroeconomic dynamics or on the contrary will it favor this monetary “pause”?, warns Alexandre Baradez.