Have the stock markets gone too fast and too high in a context of global recession? If they seem immune to Covid-19 and various geopolitical risks, the quarterly results could calm the excitement of post-containment, experts say.
Since the violent air gap in February and March, the major world stock markets have soared to record historic quarterly rebounds, ignoring health, geopolitical and cyclical risks. What give rise to a feeling of discrepancy between the gloomy economic reality and the seemingly limitless confidence of the financial markets, which benefit from the liquidity poured in profusion by the central banks.
“In an environment which is driven upwards by liquidity, the anticipation capacity of the markets is extremely weak. The markets are very short-sighted in relation to risk”, observes Jean-Jacques Ohana, director of management at Homa Capital, questioned by AFP.
Thus, the “real test” for the stock market will take place on the occasion of the publication of the results of the second quarter which begins this week in Europe and next week in the United States, where expectations of expected profits are strongly bearish.
“The publication season could harshly remind investors of the more or less lasting impacts of this crisis on corporate profitability,” say the strategists of broker Aurel BGC. And to warn that “the publication of a turnover or profit per share above expectations will not necessarily be enough to reassure investors!”.
“The question is to know if the market has already integrated in the prices the probably mediocre results of a myriad of companies and especially the downward revision of the results to come the rest of the year”, wonders of Christopher Dembik, research manager at Saxo Bank.
For the moment, given its stellar trajectory, the market, which has rebounded by 30 to 40% since March 20, is clearly playing a rapid recovery in progress known as “in V” but investors await confirmation of this scenario.
“Bubble or exaggeration”
However, many companies are still in the dark and are unlikely to be able to provide accurate forecasts for the coming months.
“Logic” would like them to be optimistic in the short term, with a rebound following the closure of the economy “but it is likely that there will be some disappointment due to the lasting impacts” that the crisis will have left in the economy, says Ohana. Companies could also “reduce their forecast horizon” and “find it difficult to anticipate the fallout from the crisis beyond the fall”.
In this case, professional investors will remain “in a fairly uncomfortable status quo,” said AFP Mikaël Jacoby, head of continental Europe brokerage at Oddo Securities, expecting a majority of “vague and cautious indications”.
But how far can investors go without certainty about the pace and extent of the current recovery?
“Either the market is ready to pay more while waiting for recovery”, “or it is a bubble or a short-term exaggeration”. Anyway, the results season, if it is bad, should “adjust the price levels”, said Alexandre Baradez, analyst at IG France.
In any event, “stock prices are no longer a barometer of the economy or of corporate health but simply a translation of the liquidity injected by central banks”, says Jean-Jacques Ohana, convinced that “it is at the edge of the cliff that the markets will realize their madness “.
In addition, “we have a total disconnection between the evolution of the markets, bullish since March 20, and the evolution of corporate profits” which are nosing or stagnating downward.
On the New York S & P500 index, the market anticipates a drop of 19% in expected profits over twelve months. And on the Stoxx 600, the index composed of the 600 main European market capitalizations, the drop is 28% for the profits expected over twelve months.