Elections and Financial Markets
Just as the French were getting ready to buy tickets for the Olympic Games, or at least turn on their TVs, Emmanuel Macron's surprise dissolution of the French parliament in the wake of the European elections stole the headlines from the French press, and often from the economic news of the Eurozone. Markets quickly adjusted. The CAC dropped 6.5% compared with a 2.3% drop for the European benchmark (STOXX600), theeuro lost 1.5% against the Swiss franc, and the yield spread between German and French debt widened from 50 basis points to 80 basis points. At the other end of the spectrum, the US market is in insolent health, and the stock market craze surrounding Nvidia continues. One of this month's lessons is that the political factor we feared in 2024 is making a comeback, but not necessarily where we expected it. This risk is likely to bring well-established stock market trends to a halt. All the more reason to remain cautious in terms of allocation and, rather than chasing certain themes in the general euphoria, to start considering some of the "collateral victims" of the current environment. We develop some of these ideas in this investment letter.
