CAC 40: lacking direction, valuations debate

(CercleFinance.com) - The Paris Bourse is expected to trade around equilibrium on Wednesday morning, in a wait-and-see atmosphere ahead of the Easter long weekend.


At around 8:15 a.m., the 'future' contract on the CAC 40 index - April delivery - was trading at 8200.5 points, down six points, suggesting an opening with no real trend.

Investors remain on the sidelines, holding on to their positions ahead of the Easter weekend, when the Paris market closes for Good Friday and Easter Monday.

Since last week's record highs, the CAC seems to be looking for direction, clearly stuck within a narrow range of fluctuations from 8150 to 8185 points.

The star index's inability to approach its major resistance zone at 8250 points illustrates investors' lack of conviction.

The recent highs recorded by stock markets around the world have pushed already high valuations to stretched levels, according to some investment strategists.

'Most of the performance of equity markets since the beginning of the year, and even over the last 18 months, has been due to the expansion of valuation multiples', emphasize JPMorgan's teams.

At global level, 12-month forward earnings have risen by just 7% from their lows, while the price/earnings ratio (P/E) has risen by almost 30%", the US bank points out.

At 21.4x expected earnings, the P/E of US equities is up 6% year-on-year, 20% since October 2023 and 30% since October 2022, notes JPMorgan.

In Europe, European P/E ratios are at similar levels, says the New York-based firm, albeit from a much lower starting point.

These high valuations risk preventing further upside and condemning markets to stagnation if they are not accompanied by earnings growth, warn strategists.

'Our concern is that earnings growth will prove disappointing', warns JPMorgan.

Investors now seem to be waiting for further signs that the economy is in good health, and confirmation that inflation is easing, to continue the upward movement that has been underway since the autumn.

With this in mind, markets will turn their attention on Friday to US household income and spending statistics, which will be accompanied by the 'PCE' component of prices, the Fed's preferred measure of inflation.

The good news for investors is that Goldman Sachs raised its target for the STOXX Europe 600 index by 6% on Monday, against a backdrop of reaccelerating growth and monetary easing, which still points to potential upside of 6% over 12 months.

In addition to the 8250-point mark, which remains the current hurdle, the CAC could thus head for the psychological 8500-point threshold, before tackling the 8700-point resistance zone in the longer term.

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