The French stock market has experienced a period of heightened volatility due to political news, leading to a significant pullback in June. The CAC 40, which is considered the primary benchmark index for French stocks, has faced a correction of almost 10% since reaching its peak in March. This decline has undoubtedly created uncertainty among investors, as they navigate the changing landscape of the market.
Despite the recent pullback, it is important to note that a primary uptrend is still in place for the CAC 40 and the iShares MSCI France ETF (EWQ). Both of these proxies for French stocks are showing signs of resilience and appear to be stabilizing following the market turbulence. This suggests that investors are cautiously optimistic about the latest developments surrounding the election and the potential impact on the market.
The CAC 40 has lagged behind the S&P 500 Index for over a year, but there are indications that the ratio may have reached an extreme on the downside. Short-term indicators are showing signs of exhaustion in the downward trend, and there is resistance at the 200-day moving average, indicating a possible shift towards outperformance for French stocks compared to their U.S. counterparts. Additionally, the long-term uptrend indicated by the cloud model for EWQ suggests that the bullish trend remains intact.
Recent stabilization in many French stocks is a positive sign that the market may be poised for a rebound. The weekly stochastic oscillator for EWQ has turned higher from oversold levels, indicating improving short-term momentum. This technical catalyst, along with signs of downside exhaustion in key stocks like LVMH Moet Hennessy Louis Vuitton (LVMUY) and TotalEnergies (TTE), suggests that a recovery may be on the horizon for French benchmarks.
While the French stock market has faced challenges due to political uncertainty and market volatility, there are indications that the worst may be behind us. Investors are cautiously optimistic about the potential for a rebound in French stocks, supported by technical indicators and positive reactions to oversold conditions. It is essential for investors to closely monitor the market dynamics and seek advice from financial advisors to make informed decisions in this ever-changing landscape.