The Covid-19 tsunami has already wreaked havoc on the financial markets. In the first quarter, the Dow Jones fell more than 23%, unheard of for over 30 years. The Standard & Poor's 500, the managers' benchmark, plunged 20%. In Europe, the broad Euro Stoxx 600 index fell 23%. The CAC 40, meanwhile, plummeted by almost 27%. It is the equivalent of 450 billion euros of market capitalization that went up in smoke. The dropout is much stronger than that recorded during the sovereign debt crisis of the euro zone in 2011 or after the bankruptcy of Lehman Brothers in 2008.
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What especially marked the spirits is the speed of the fall. Between February 19, when it had climbed to more than 6,100 points, and its March 18 floor at nearly 3,700, the Paris index lost almost 40% of its value in less than a month.
Massive stimulus packages drawn by governments and central banks allowed markets to gain ground in late March. But the losses remain considerable. Extremely rare, all CAC 40 stocks finished the first quarter in red. The biggest drop came from the oil and gas group Technip, whose price plummeted by more than 66% in three months. At the height of the storm the value of the group fell to nearly 2 billion euros and the title was released from the CAC 40 on March 23. Oil companies, and even more oil service groups, which are at the very end of the investment chain, have suffered considerably as the crude prices plummeted. A barrel of brent oil lost almost 70% of its value in the first quarter, before experiencing a spectacular recovery in the past two days.
Heavy tribute
With planes nailed to the ground, the aeronautical sector is also paying a heavy price: Airbus abandoned about 60% in the quarter and Safran more than 50%. The automobile is also at the forefront with a market practically stationary in many countries. Renault lost around 60% in the first quarter and Peugeot just over 42%. Banks also suffer considerably with falls of around 50% for Societe Generale, Crédit Agricole and BNP Paribas. They are suffocated by low rates and carry the credit risk of companies. The title that resisted the best was Carrefour almost unchanged since January 1, whose stores remain open. The usual whooping coughs like Hermès (-9.6% since the start of the year), Air Liquide (-8.7%) and L'Oréal (-10.5%) fared better than other.
Many investors anticipate that the low point on the CAC 40 market has not yet been reached.
Christopher Dembik, at Saxo BankThe second quarter promises to be difficult. Despite the recovery plans, the economic cost of containment looks astronomical. Goldman Sachs, for example, is now forecasting a 34% annualized drop in US GDP. While the country was at full employment, analysts at the bank see an unemployment rate of 15% in the middle of the year. In China, where the epidemic hit first, growth is slowly coming back. But the basis of comparison is exceptionally weak and the recovery very fragile.
" Many investors anticipate that the low point of the market on the CAC 40 has not yet been reached and expect a further decline towards 3800 points, even 3200 points, " notes Christopher Dembik, at Saxo Bank. In Europe, analysts are now expecting a nearly 22% drop in profits for the Stoxx 600 in the second quarter and more than 15% in the third. This disaster has not dissuaded a certain number of individuals from returning to the markets, convinced that the worst is over.
