The issue of fighting inflation and cutting interest rates continues to remain in the background, with Central Banks still able to direct even the main stock markets.
Oscar Soppelsa – Portfolio Manager, Question SGR – believes that the issue of fighting inflation and cutting interest rates continues to remain in the backgroundwith central banks still effectively able to direct even the major stock markets. The expert argues that both the FED and the ECB are following a narrative geared towards a progressive but slow downward revision of current ratesthus impacting the performance of certain sectors.
According to Oscar Soppelsa, an interesting match is the one between names with larger capitalizations than the so-called smid capswith large caps posting a very marked outperformance on both sides of the Atlantic. “However, the reasons behind the rally are heterogeneous and only partially coincide for US and European large caps,” the expert pointed out.
From a general point of view, writes Oscar Soppelsa, the Factors behind large cap outperformance – both in the United States and in Europe – are to be found in factors such as: the low level of indebtedness, the significant cash reserve and a lower sensitivity both to the costs of debt refinancing and to the performance of the economy in the broader sense.
Looking instead at the differences between the United States and Europe, the expert argues that the starting point is of a sectoral nature; in fact, if the rally of US large caps is explained above all by the fact that these are names that operate in the technological and artificial intelligence segment (the so-called Magnificent Seven) European Super Large Caps (less than 10 names) that dominate the market have in common not the reference sector but rather other aspects, first of all that linked to the solidity of the balance sheet.
“So, in the medium term, are small caps destined to lose the comparison also in the second half of the year?”, asked Oscar Soppelsa. The expert believes that today we are at a point where there is less performance differential: small caps that have remained competitivein fact, are those that have healthy balance sheets and thatin the next months, could recover in terms of multiples. And, above all, they currently have lower valuations than the names with larger capitalizations. Obviously, however, Oscar Soppelsa believes It is also important to consider the greater sensitivity of small caps to the performance of the economy in general.: consequently, the possible risks on the horizon are to be found in a hypothetical scenario characterised by rising inflation and interest rates.
