Banking and energy, favorites in the Stock Market in the face of uncertainty and the ECB

Madrid Stock Exchange building. / EFE

Experts anticipate stock market movements after the summer in an environment of slowdown and rising interest rates

Clara Dawn

A difficult summer that gives way to an uncertain autumn. This is the general sentiment of investors, who are facing the return to stock market school with the challenge of adjusting their portfolios to a new environment marked by high inflation and widespread increases in interest rates. The Ibex-35 says goodbye to the summer period with a fall of 10% from the beginning of June until last Friday and the red numbers so far this year have dropped to 7.8%.

It is true that the Spanish stock market has performed much better than other large international markets, with accumulated losses of around 20% in Italy, Germany or in some Wall Street indices. But the tension in the national stock market is more than palpable, much more after a few days in which the central banks have made it clear that the priority continues to be the fight against price escalation, even if that means hindering growth or even "causing pain". » to families, as recognized by the president of the US Federal Reserve (Fed), Jerome Powell, at the last meeting of central bankers in Jackson Hole. This week, the European Central Bank (ECB) authorized the largest rate hike in its history in one go: 0.75 points, which brings the official price of money to 1.25%. Fighting inflation outpaces growing recession expectations.

Now it's time to come back in the days that remain in September, a traditionally negative month for the market. But experts agree that there are still opportunities to take positions again. Especially after the recent correction that has undone the upward path of the summer. "There are only two important issues to watch now: the entry levels in the market and the possibility of a recession," they indicate from the Bankinter analysis department.

The central scenario handled by the firm is that the Ibex-35 will end the year at 8,200 points. That is, more or less at current levels. But it is foreseeable that these levels will be adjusted downwards if the macro and central banks continue to point to the risk of economic contraction. "The attitude of the central banks, which prioritize the control of inflation and their expectations over economic growth, will have to be from now on the base scenario with which investors work", explains Juan José Fernández-Figares, director Link Securities analysis.

The consensus appeals to prudence. Víctor Alvargonzález, director of strategy at the independent advisory firm Nextep Finance, adds that "the Spanish market will continue to do quite well compared to other European and world markets." Everything that has harmed him in the last 20 years, especially the lack of weight of the technology sector, benefits him now. The composition of the Ibex is "suitable for an environment of high inflation and higher interest rates," says the expert. They consider the leisure and tourism sector attractive. “We have already seen the desire that citizens of the entire world have to go out and forget about viruses, wars and other hardships and how they are willing to assume the rise in prices in the sector,” they explain.

In an environment of rate hikes, banks are also another of their bets, since, despite the recent increases, "they are trading at historically low prices." "For obvious reasons, we also like the energy sector," he adds.

The macro, in focus

Victoria Torre, director of Digital Offer and Corporate Communication at Singular Bank, is somewhat more cautious. “The rise in rates benefits banks, but as long as they occur in an environment of some growth; If fears of a recession persist, financial institutions may choose to tighten credit access conditions, and this would undoubtedly impact their business prospects. Thus, we remain cautious on equity exposure », she indicates.

In this context of caution, they consider that defensive stocks (pharmaceuticals or food) are somewhat less attractive, due to their high valuations. "On the other hand, we could bet on companies linked to infrastructure, which defend themselves better against inflation and have attractive valuations," says Torre.

He agrees that the energy sector remains attractive, especially with oil prices above $80, "while, in the midst of the energy shortage debate, utilities with exposure to renewables could do better than more defensive. Values ​​such as Aena, ACS and Repsol stand out among their favorites for the final stretch of the year.

Seven out of ten fund managers expect an economic slowdown

“Actually, we're not very good at forecasting. We pretend that we do, but the truth is that we don't. These are the words of Alan Greenspan, president of the Fed between 1987 and 2006, that a few days ago the DWS analysts recovered in a report for their clients in which they recognized that, in the current environment, estimating what may happen in the medium term is mission almost impossible even for those responsible for monetary policy. This feeling of uncertainty is precisely what is weighing the most on the market since the outbreak of the war in Ukraine.

And the complex scenario of energy crisis and high inflation will continue to mark the market for some time. That is why the experts agree that each data and each movement of the central banks will be key to defining the future of the Stock Exchanges in the final stretch of the year.

One of the indicators of investor sentiment most followed by the market is the survey of Bank of America fund managers, which in August showed some improvement in some of its models. For example, 67% of investors think that the world economy will weaken in the next 12 months. It seems a very high figure, but it must be taken into account that it comes from a record in July of 79%.

Caution in Europe

Regarding Europe, 73% of those surveyed expect a slowdown in economic growth, also below the 88% of the previous month.

The vision is, without a doubt, somewhat less pessimistic than a few weeks ago. But the clouds are still very present in the document and we will have to wait for the September survey to see if the feelings have worsened after the latest movements by the central banks.

For the moment, energy and the pharmaceutical industry continue to be the favorite sectors of the managers surveyed compared to construction and real estate, which have come to occupy the last positions.

The survey also reflects how the great concern of investors continues to be inflation and, above all, its possible impact on consumption and economic growth. We must not forget that in economies such as the United States, private consumption represents almost 70% of GDP.

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