As predicted in our last articles, the European and U.S. indices have made a major recovery after falling in early August.
If we look at prices for Q2 2024, we see that they have remained virtually unchanged.
Although Western markets posted moderate gains in August, this should not fool us-there were times of sharp declines and high volatility. In Europe, the Stoxx Europe 600 index fell 7 percent in the first week of the month, only to recover 10 percent in the following weeks. This instability was caused by a drop in the Japanese stock market, as a result of differences in the approach to monetary policy between the Japanese Central Bank and the U.S. Federal Reserve, and concerns about a possible economic recession in the United States. However, these fears were allayed, allowing the European and U.S. markets to end the month with positive results after an uncertain week.
As expected, core PCE inflation remained stable at +2.7 percent year-on-year in July. This supports the Federal Reserve's plans to lower its benchmark rate in September. However, there are still questions about the extent of the cut. According to the CME's Fedwatch tool, 70 percent of traders expect a 25 basis point cut. We will have to wait for more macroeconomic data to get a better view of the situation. If these do not meet expectations, the Fed may be tempted to delay the rate cut as desired by the market.
The European economy is in a similar situation to that of the United States. Inflation has fallen to 2.2 percent, which is close to the ECB's target. As a result, a further cut in interest rates is expected. It would be unreasonable to keep rates at 4.25% when there is a chance to further improve the economy by lowering rates.
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The technical situation of the indices is positive at the moment.
Technical Analysis
September is known as the most difficult month for stock markets, so it should not surprise you if you see a period of consolidation, especially after the steep climb of the past two weeks. However, as is often the case, this may only be temporary, and we may see a recovery in October and November.
The quarter's financial performance has given a boost to prices, and now all eyes are on the U.S. presidential election. There are several sectors poised to benefit from a victory by one of the candidates.
According to our forecast, the Nasdaq 100 could enter a consolidation phase that could lead prices to test the 200 moving average. From there, we expect a recovery toward all-time highs, thus making a gain of about 7 percent from current levels.
The month of September begins, which has statistically been the worst month for equity markets for many years, and it is therefore to be expected, also given the steep bullish movement of the last two weeks, that a consolidation phase will take place, to then go, as is often the case, to ride a restart in October and November.
The quarterly reports have given fuel to prices, and now the focus is on the U.S. presidential election, and there are compartments ready to benefit from a victory of one or the other candidate.
It is therefore possible to assume for the Nasdaq 100 a consolidation phase that could lead prices to test the 200 moving average and from that level restart, to go to all-time highs thus realizing a performance of about 7 percent from current levels.
The situation on the German market (Dax) is different, as it is currently at all-time highs. There may be a short retracement to test the 50-period average, but we expect new highs at least until November. We anticipate a possible +4% rise from current levels.
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