Stock Market Forecast: Will the CAC 40 be Affected by Adverse Winds, Leading to a Potential Downturn?
Dwindling CAC 40 ETFs Amid Economic Headwinds
Paris's flagship equity index, the CAC 40, has experienced a drop since its peak on Tuesday, with numerous challenges looming on the horizon. Apart from traditional profit-taking following an unprecedented surge since April 7, worries about the trajectory of US public debt, inflation, interest rates, and economic growth slowdown are significant concerns for the index.
US President Donald Trump's economic policy has resulted in historically high tariffs, which, if maintained, could lead to increased inflation and decreased economic growth in the US, negatively affecting other global economies, as per LBP AM. These tariffs, according to the asset manager, will likely have the feared negative impact on the economy, with a budget proposal currently being discussed in Congress expected to significantly increase US deficits over the next decade.
The US economy appears to be growing weaker, as evidenced by construction figures, regional Fed surveys, and the Conference Board's leading indicator, which suggests a weakening of the US economy in the next three months. In the Eurozone, the European Commission's consumer confidence indicator remains depressed in May and is well below its historical average. The Eurozone's PMI index of purchasing managers was "unpleasantly" surprised, highlighting negative sentiment weighing on businesses and economic growth prospects in the Eurozone.
Moreover, the trajectory of US public debt is increasingly concerning, especially since public spending cuts are likely to be insufficient to prevent a debt spiral. Even if tariff revenues contribute a little to reducing deficits, US public debt will continue to grow, according to LBP AM.
The European Union is facing potential tensions on public finances due to ongoing financial support for Ukraine and the accelerated pace of EU military rearmament, following the discussion between Donald Trump and Vladimir Putin, which apparently shifted the US President's focus away from Ukraine.
From a technical analysis perspective, the CAC 40 is experiencing a downward correction, falling from the horizontal resistance of 7,938-7,956 points. Similarly, Wall Street is falling from the notable horizontal resistance of 5,960-5,969 points. Investors should remain vigilant and consider strategies like diversification, monitoring economic indicators, and using ETFs to capitalize on opportunities and manage risks in the current challenging economic environment.
In the current tense economic climate, investors might find it prudent to analyze and invest in stocks, taking into account the potential risks and challenges in the stock-market, such as the increasing US public debt and the impact of tariffs. For instance, considering the downward correction in the CAC 40 and the fall from the notable horizontal resistance on Wall Street, it's essential to employ strategies like diversification, keeping a close eye on economic indicators, and using ETFs to navigate the complexities of the finance world and manage risks.
