The CAC 40 Index remained under pressure this week as investors reacted to the political crisis in France. The index, which tracks the biggest companies in France, was trading at €7,970 on Monday, down from last Friday’s high of €8,092.
Why the CAC 40 Index is falling
The CAC 40 Index slumped on Monday after Sebastien Lecornu resigned a the prime minister a month after his appointment. His resignation has intensified the political crisis that has been going on in the past few months.
Lecornu has been the country’s sixth prime minister since 2020. The main reason for the increasing turnover has been the ongoing debt issues and how to deal with the pension crisis.
Therefore, the crisis has led to higher government bond yields, with the ten-year rising to 3.60% on Monday from 3.50% on Friday. It has been in an uptrend after bottoming at 3.15% in June last year.
The rising bond yield means that some investors are moving to fixed-income assets that are offering a higher return. This rising bond yield is happening even as the European Central Bank (ECB) has slashed interest rates since last year.
The CAC 40 Index has also underperformed other global indices because of its exposure to China, a country where demand for luxury goods has cooled.
Top gainers and laggards in the CAC Index this year
Most companies in the CAC 40 Index have jumped this year. Societe Generale’s stock has jumped by 100%, making it the best-performing company in the index. The third-biggest bank has done well because of the ongoing strong performance.
Societe Generale made over 13.9 billion euros in revenue in the year’s first half a 8.6% increase from the same period last year. Its costs dropped by 2.6%, while the net income was €3.1 billion.
The company also upgraded its forward guidance and changed its dividend paying policies. It will now be paying a dividend every fourth quarter of the year and is also repurchasing its shares.
Thales stock price has jumped by over 53% this year, mirroring the performance of other European defense companies. The other top gainers in the index are companies like Safran, Orange, Bouygues, Airbus, and BNB Paribas.
On the other hand, the top laggards in the index are companies like Edenred, Stellantis, Renault, Pernod Ricard, Capgemini, and Publicis Groupe. All these shares have plunged partly because of Donald Trump’s policies.
CAC 40 Index technical analysis
The daily timeframe chart shows that the CAC 40 Index has rebounded in the past few months, moving from a low of €7,523 in August to a high of €8,092. It has moved above the important resistance at €7,950 and the 50-day and 100-day Exponential Moving Averages (EMA).
It has also formed a break-and-retest pattern, which is a common continuation sign. Therefore, the index will likely have a strong bullish breakout, potentially to the important resistance level at €8,500. A move below the support at €7,800 will invalidate the bullish forecast.
The post CAC 40 Index outlook: Understanding the decline and future forecast appeared first on Invezz
