The month of November was particularly eventful on the markets due to corporate reporting and inflation data, which saw a slowdown for the first time.
This moment of grace is reflected on the European stock markets with higher relative performance than the US indices. In the last month, the FTSE MIB gained around 8%, the DAX grew by 9%, and the NASDAQ and S&P 500 grew 4% and 5% respectively. This rally is driven by six consecutive weeks of short covering (in order to sell short, the seller borrows securities and sells them immediately on the market, with the intention of repurchasing them at a lower price in the future), with 50% of puts cancelled and 5 billion calls purchased. Moreover, many companies in Europe have benefited from the depreciation of the euro.
However, “caution” remains the watchword, as despite these signs of recovery, the macroeconomic situation remains highly complex, with geopolitical tensions, the energy crisis and the ongoing war between Russia and Ukraine.
As regards reporting in the third quarter, there have been several statements from companies not being able to achieve the profits expected by the initial forecasts issued on the market.
However, these profit warnings are not yet clear proof of a serious economic downturn. In light of the current situation, there is still a big question mark over 2023, where on one hand we have analysts who have cut the estimates and, on the other, low growth forecasts, though without yet reflecting the increasingly more likely recession and the consequent drop in sales.
At sector level, banks recorded positive performance thanks to good interest margins, while the automotive sector also performed well thanks to consistent demand and the easing of logistical problems that had previously prevented the production of many cars on order.
Oil companies also performed strongly due to the industry’s current golden era.
However, the situation looks different for the consumer goods sector, which experienced a fall in margins due to rising commodity prices. The same goes for utilities, with the cost of energy remaining high.
It’s been one month since Giorgia Meloni took over from Mario Draghi at Palazzo Chigi. The Council of Ministers met on 21 November, and a State budget of € 35 billion was approved.
The main solutions include:
In this context, even though the spread has narrowed, the markets continue to bide their time and await the announcements of the central banks, which are most likely to tip the scales.
Commentary by Massimo Trabattoni, Head of Italian Equity.