The acceleration of Wall Street at the start of the year, followed by the Italian Stock Exchange, was perhaps a surprise but it cannot be said that it was without justification.
Nor can it be put down to mere impetus. The fact that it was intense can obviously be explained within the typical context of low volumes in which it initially developed: the hint of a fresh acceleration in stock market indexes forced even the most sceptical investors to join the flow of purchases, amplifying the bull effect.
On the other hand, with a difficult year ahead due to a plethora of factors of uncertainty, after many positive years, operators must, of course, participate as soon as the equity market shows positive signs. Half-hearted purchases often do not target individual securities but indexes. And so in many cases, prices are behind the first positive movement of the year.
Will it continue? Generally speaking, we can say that the start of the new quarterlies season shouldn’t contain any nasty surprises which could impact the underlying trend.
On the American front, the bull situation seems to still be favourable in this phase. The weak dollar, which boosts the exports of US companies, figures prominently among the positive factors, augmented by the Fed’s monetary policy (excluding exceptions) and the tax reform sought by president Donald Trump.
On the European front, the situation is more uncertain. Contrary to what is happening for Wall Street, the trend in the Euro-Dollar exchange rate risks handicapping the bullish potential of companies in the Euro area. In addition, the uncertainties surrounding the ECB’s withdrawal of QE will shape the second part of this year.
If nothing else, the positive start to the year for the share markets distanced the uncertainties generated by the entry into force of MiFID II, or because anticipated by portfolio transactions carried out in December or due to having postponed the moves to be made to a later time, pending the observation of a real impact on the portfolios of the application of the new directive.
On the Italian Stock Exchange, the situation requires greater attention. It has to contend not only with the “strong Euro” effect, but there is a risk stemming from the political elections, even if, in reality, it seems to already largely reflect an uncertain outcome scenario, but not owing to this negative aspect. That is not all. We need to take into account the weakness of banks which, as underlined some time ago, are now under pressure from the ECB owing to more restrictive criteria regarding the impairment of NPLs.
On the Italian equity market, nonetheless, a certain contribution in the general upward movement of equity is certainly on show. In a practical sense, it has taken the form of purchases of index futures and, as regards individual securities, of a shift towards some burning issues like cars, destined to remain in the spotlight during the year, and oil.
By Massimo Trabattoni, Head of Equities for Italy at Kairos, for AdvisorPrivate’s Italian Times column.