The CAC 40 index fell on Tuesday, on the Paris stock exchange, for a few moments below the 7,000 point mark, a first in seven months.
The argument is technical but the decline says a lot about investor morale. With a loss of 1% in a single session, the flagship index of the Paris Stock Exchange, the CAC 40, rose, momentarily, on Tuesday October 3, to 6,997 points. This is not going to keep us from sleeping, but going below 7,000 points has not happened since the banking crisis in March, when the Silicon Valley bank in the United States collapsed, leading to other regional banks. The shock wave had reached Europe with the setbacks of Credit Suisse.
Interest rates kept too high by the FED are slowing down the European economy
We are not on the eve of a new financial crisis, but serious questions remain about the evolution of the European economy. The monetary policies carried out by central banks, the European Central Bank and the American Federal Reserve in particular, have nothing to do with it. Monetary policy affects the evolution of interest rates, both upwards and downwards. Right now, interest rates are very high to fight inflation. Too high, some say, which slows down our economy.
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In the eyes of stock market operators, if rates remain high, this could soon weigh heavily on the profits of companies called upon to reduce their level of debt, and therefore their level of investment. People who invest their money in the stock market, and their advisors, are increasingly convinced that central banks will keep their interest rates high, that this will weigh on company performance and, in turn, on dividends paid. to shareholders.
Towards a continuation of the market decline?
Generally speaking, high interest rates are not favorable to positive developments on the stock markets. Starting with the United States. The first victims are the technology giants: GAFAM – Google, Amazon, Facebook, Apple, Microsoft – whose stock market level depends on their future profits.
If investors are not confident in the short term, they sell their shares, lower prices, and the markets generally decline. It is not the end of the world but it is worth monitoring because the evolution of the financial markets stands out, rightly or wrongly, as a thermometer, an indicator of the morale of developed countries.