Badly penalized at the beginning of the month by fears about the US economy, and then the unwinding of yen carry trades, they quickly recovered to end the month slightly up.
In the United States, the S&P 500 outperformed the Nasdaq and, above all, the SOX (the semiconductor index), which was penalized at the end of the period by the decline in Nvidia*, which still offers good growth momentum, but is struggling to surprise high expectations and is forecasting lower gross margins. In Europe, the German DAX set new records, while the Paris Bourse continued to lag, still penalized by political uncertainties and the weight of the luxury goods sector.
Margins hold up well
Without being flamboyant, the results season once again ended with positive net surprises (in numbers), on both sales and earnings.
Listed companies resolutely chose to maintain their prices, even if it meant spending more on advertising to support sales. At sector level, financials once again surprised on the upside. They benefited from interest rates that were still higher than their assumptions at the start of the year, while the cost of risk remained under control. Conversely, stocks exposed to discretionary consumer spending (luxury goods, automotive) or corporate spending (IT services) tended to revise their annual outlooks downwards, as their customers were certainly waiting for a stronger signal on rates.
Favourable relative valuation for euro zone equities
US markets still seem to us to be highly valued. They are buoyed by still-solid US growth (still +3% inQ2 ), underpinned by consumer spending and business investment. The main area of weakness remains residential investment, penalized by the level of interest rates. Nevertheless, the wealth effects remain significant: growth in the number of employees and wages, rising financial markets and property prices. In the short term, the focus will be on the elections. Following the nomination of Kamala Harris and the choice of Tim Walz as her running mate, the Democrats have caught up and even seem to be leading in some swing states previously held by the Republicans. A Democratic victory would perpetuate the economic support measures implemented by Joe Biden’s administration, but would also mean an increase in the corporate tax rate to 28%.
Conversely, Eurozone equity markets remain cheaply valued, but do not benefit from the same support. Growth is modest. While households are regaining some of the purchasing power lost during the Covid period, they continue to save. Industrial production remains penalized by rising energy costs and weaker export momentum, partly due to a weaker-than-expected Chinese recovery. Their future performance will depend to a large extent on the actions of the European Central Bank (ECB) and its ability to encourage a resumption of growth in the zone, even though some countries will have to reduce their budget spending.
In any case, at the end of August, Fed Chairman Jerome Powell set a clear course at the annual Jackson Hole seminar of the world’s leading monetary authorities.
Since the beginning of the year, we had advocated neutrality on the asset class, preferring to advise underweight investors to position themselves during market lows. The beginning of August proved to be such a trough, albeit a very brief one, as European markets have been negative for only a moment since the start of the year. With the European markets having reached the targets we had anticipated for the full year 2024 (the US markets having exceeded them), we are maintaining our neutral stance.
