Market Review : a surprisingly positive first half
Despite geopolitical tensions and persistent inflation, equity markets wrapped up a remarkably robust first half, driven by tech and economic resilience. However, in the face of sometimes extreme valuations and upcoming political uncertainties, vigilance remains key for the second half of the year.
Despite geopolitical tensions and persistent inflation, equity markets wrapped up a remarkably robust first half, driven by tech and economic resilience. However, in the face of sometimes extreme valuations and upcoming political uncertainties, vigilance remains key for the second half of the year.
The first half of the year is already behind us, and it is no exaggeration to say that the results on the financial markets are positive—especially considering everything that has transpired on the geopolitical front!
Obviously, everyone could have done without the conflict in the Middle East, only for it to lead to a final agreement that seems worse than the one preceding the war! All that for nothing! Along the way, we saw a rise in energy prices, resulting in a bit more inflation and a rebound in interest rates (which explains the near-zero performance of bond markets in the first half).
Yet, equity markets quickly grow weary of bad news, preferring to look at what is going well and what truly matters for the future: growth and innovation. Ultimately, European equities progressed by just over 8% in the first half, and American equities fared slightly better (9.6% for the S&P 500 in dollars, 12.8% for the Nasdaq), while emerging markets gained over 20%!
Moreover, on this subject, let’s not forget two things:
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equity markets are not a perfect reflection of the economy and are driven by a ultimately quite limited number of very large companies;
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we can speak of a two-speed market during this first half, heavily pulled upward by technology stocks, and more precisely, the semiconductor segment.
Resilience Driven by Tech and Corporate Growth
We won't dwell on the sometimes indecent results of these companies (the best example perhaps being the 19-fold increase in Samsung's second-quarter profits!!!), but we should note that, overall, large companies have published good results so far, and economic growth is holding up quite well, whether in the United States, Europe, or Asia.
Of course, it is not all roses, far from it. The fragile political situation in several major countries is a source of concern, such as the upcoming mid-term elections in the United States, the latest change of Prime Minister in the UK, or the start of the presidential campaign in France.
Furthermore, the overindebtedness of governments combined with widening budget deficits in many countries is weighing on interest rates. On top of that, inflation remains too high, and interest rates have reflected this. However, the recent easing in commodity prices offers a glimmer of hope. This could potentially grant central boards greater room for maneuver when managing their benchmark rates.
Between Consensual Optimism and Cautious Choices in the Short Term
Ultimately, market behavior, as well as comments from economists and strategists, currently point toward a fairly clear consensus: the general sentiment is one of optimism. For our part, this context leads us to adopt a certain degree of caution in the short term.
For instance, we favor assets with reasonable valuations, whether in emerging markets or in certain neglected business sectors (healthcare, luxury goods, agribusiness) and/or those penalized by the AI threat (such as software publishers). Similarly, on the bond front, we prefer short- to medium-duration debt, and corporate debt over government bonds.