It won’t be a bad day for the stock market that will change the tone of this period. A tone of euphoria for the stock market; so euphoric as to make one say that on the financial markets – in particular on the stock markets – reality seems to be canceled out. The war in Ukraine which has continued vigorously for two years, with incalculable human suffering and material damage; in Middle East the conflict seems to increase in intensity and international horizon every day; without talking about the costs of the ongoing energy transition, and one inflation which cools but does not run out. In short, the real economy should only show signs of concern, dragging the barometer of the financial markets (especially stock markets) towards signs of turbulence. But no. Overall, stock indices are growing in almost all markets around the world (except for some setbacks, like yesterday).
For weeks, stock markets have known only one direction: upward. The German stock index Dax is reaching one record after another. Since the low reached at the end of the third quarter of 2022, the Dax has gained almost 50% in euro terms. The S&P 500 index is also trading above 5,100 points, just below its highs. By contrast, the Swiss stock market is out of line, with the SPI falling below 15,000 points, still about 10%, or 1,500 points, from its January 2022 high.
FIVE SIGNS TO FOLLOW
Here are the signals to follow before venturing into the juicy stock market (while waiting to indicate some investment hypotheses):
Weak signals from Europe. There Germany it is the “sick man” of Europe, as happened in the early 1980s. The country has been in a mild recession for months. High energy prices, in particular, are weighing on the important export sector. But the construction and real estate sectors are also struggling due to high regulatory requirements.
The United States they grow. The situation in America, however, is completely different. In the United States, the economy is booming, corporate profits are rising, and inflation rates are falling. In recent months, the US economy has mostly surprised on the positive side. For example, strong annualized GDP growth of 3.3% was recorded in the last quarter of last year compared to the previous quarter.
L’India surpasses the China. Last year, the Indian subcontinent became the most populous country with 1.4 billion people, ahead of China. The pace of growth has accelerated. Since 2015 the country has been leading the G20 countries. Apart from 2020, the growth rate averaged 7-8% and last year contributed 16% to global growth. In contrast, China – the former engine of global growth – is pursuing an increasingly dogmatic path and distancing itself from the West.
Rates down? Perhaps. The widespread decline in inflationary pressure has for months fueled expectations of an imminent reduction in key interest rates, particularly in the United States. However, data on consumer spending or new jobs, as well as rather pessimistic statements from central bankers, are repeatedly dampening hopes of an upcoming reduction in interest rates.
The driving force of the “Magnificent Seven”. The United States maintains its dominant role in the global capital markets and demonstrates this impressively in the stock market. The “Magnificent Seven”, the largest technology stocks – if only Nvidia, Microsoft And Apple they are strictly technology stocks; the other four (Alphabet, Amazon, Meta Platforms And Tesla) concentrate the business on other market segments, although technology still has a significant presence in the development of the company’s business.
FIVE TITLES TO CHASE
Suggesting the stocks to invest in would be equivalent to having a crystal ball. Which we don’t have. However, we can list five stocks which – a little more, or a little less – represent a reasonable (non-speculative) purchase objective to grow over time. There are a couple of the “Magnificents” (but not all) and there is more:
1) AT&T – ideal company for investors looking for a stable and reliable long-term option. AT&T is one of the largest telecommunications companies in the world. It provides mobile and landline telephone, Internet and cable television services to millions of customers.
2) Amazon – E-commerce continues to grow year on year, which means that the demand for Amazon’s services is constantly increasing. Amazon holds nearly half of the U.S. e-commerce market, and its market share continues to increase. Amazon is not just an online retailer. It has a diversified business. The company also owns the music and video streaming service Amazon Music and Prime Video, the payment system Amazon Pay, the delivery service Amazon Prime and many others.
3) Nvidia – is a world leader in the production of graphics cards and systems for three-dimensional image processing. The US company specializes in the creation of GPUs, chips designed for processing complex mathematical calculations necessary for generating 3D graphics in real time. NVIDIA products are widely used in the gaming sector, but in recent years the company has diversified its offering by focusing heavily on artificial intelligence and machine learning.
4) MasterCard – a key factor for Mastercard’s success is the advantage it derives from network effects. The more consumers use Mastercard, the more merchants are incentivized to accept it and vice versa. This virtuous cycle has fueled Mastercard’s progress for many years and results in high switching costs for customers and merchants. Mastercard also has a geographically diverse revenue stream, generating revenue from all over the world. The move to cashless electronic payments further boosts Mastercard’s prospects.
5) Ferrari – Ferrari enjoys enormous pricing power resulting from its position as a premium luxury brand and the limited nature of its cars (the company intentionally limits the production of its cars to maintain the brand’s scarcity, meaning there are often long waiting lists for Ferrari models). This allows Ferrari to generate very high profit margins, often exceeding 20%. Even in times of recession, wealthy customers will continue to buy Ferrari cars.
Ferrari aims for medium-term revenue growth of 3-5% per year.
