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An almost continuous rise over the last 20 months, interrupted right at the best moment and in a very abrupt way by the tensions that developed after the European elections and in anticipation of the early French vote. Thus the Ftse Mib of Piazza Affari concluded the first six months of 2024 with a flattering balance, but at the same time at a level almost 6% lower than the values towards which it had reached in mid-May, which in turn represented the highest since the times before the Lehman crisis.
If the announcement by the French president, Emmanuel Macron, has for the moment represented the watershed for the attitude towards risk (first favorable, then adverse) on the part of investors towards the whole of Europe, the impression is that Piazza Business arrived at the appointment already feeling a little short of breath. And this is also confirmed by an analysis by Intesa Sanpaolo, with which we try to give weight to the various components that have determined the stock market rise in the last six months, to also try to understand future dynamics, political tensions aside.
What drove the rally
The underlying idea is that the improvement in the so-called “fundamentals” has driven only a part of the equity rally: “Just half of the increase in the FTSE MIB in the first half of 2024 was explained by a more accommodating euro area yield curve and an improvement in the outlook for corporate earnings”, admits Giampaolo Trasi, Head of Equity and Credit Research at Intesa Sanpaolo, underlining how the remaining half of the movement was “justified by a lower equity risk premium”.
In other words, a significant dose of the bullish push had come from the more favorable attitude of investors towards Italy and Europe itself, after a long period in which our shares had ended up on the margins of global portfolios. That same “appetite for risk” that for the moment has suffered a hard blow also due to the French events and that now represents perhaps the greatest unknown for the coming months, also considering the key electoral appointment in November with the Biden-Trump challenge for the White House.
Caution
For this reason too, Intesa Sanpaolo’s expectations, while remaining favorable, appear to be marked by caution. The target for the Ftse Mib at the end of the year remains set at 35,300 points, more or less the value recorded in mid-May and about 6% more than current levels (+4% at the time of writing the report). For 2025, another small step forward of 5% is expected up to 37,000 points. “We expect a limited overall increase of 9% over the next 18 months – explains Trasi – due to the weak boost from profits for 2024-25, the few signs of an easing of interest rates and the geopolitical issues that remain open”. Intesa Sanpaolo’s indications are in this sense for an overall average reduction in corporate profits of companies listed on the Milan Stock Exchange of 3% for 2024, followed by a modest recovery (+5%) next year, while in their valuation models the rate curve is prudently kept at current levels.
