CAC 40 is in a bear market and the worst is yet to come

  • July 12, 2022

The CAC 40 index has had a difficult year in 2022 as concerns about inflation, European recovery, central banks, and corporate margins remain. The index is trading at €5,971, which is about 20% below the highest point in 2021. This performance tracks that of other European indices like the DAX and Euro Stoxx. 

Why are French stocks falling? 

CAC 40 is one of the biggest indices in Europe. It is made up of the biggest companies in France. Some of the biggest constituents are companies like Louis Vuitton, L’Oreal, Sanofi, and TotalEnergies. 

The index has been in a downward trend in the past months as investors worry about a number of factors. First, there is the ongoing energy crisis in Europe because of the ongoing war in Ukraine. European countries, which rely fully on Russia, have been forced to find alternative natural gas sources. 

The implication is that many companies in France are now paying a heavy price for their energy products. Still, unlike Germany, France has been helped by the country’s huge investments in nuclear energy. It also receives a small amount of natural gas from Russia. 

The CAC 40 index has also fallen because of the weak euro. The euro has crashed below parity with the US dollar and the Swiss franc. While a weaker euro has benefited many French exporters, it has hit them when importing inputs like steel, aluminum, and even crude oil. 

Further, the CAC index has pulled back as investors worry about the hawkish European Central Bank (ECB) and the rising risk of another European financial crisis. The ECB is expected to start hiking interest rates this month and exit negative rates in September. 

Historically, the CAC 40 index tends to underperform in a period of high interest rates. Couple this with the fact that the Federal Reserve is expected to hike rates by another 0.75% later this year. 

The worst performing stocks in the CAC index are Schneider Electric, Societe Generale, Saint Gorbain, Credit Agricole, Kering, Hermes, and Legrand. All these shares have collapsed by over 30% YTD. On the other hand, the top performers in the index are Thales, Orange, Sanofi, TotalEnergies, and Carrefour. 

CAC 40 forecast 

The daily chart shows that the CAC 40 index has been in a strong sell-off in the past few weeks. The index remains below the 50-day moving average and the important resistance level at €6,080, which was the lowest level on May 9th.

The Relative Strength Index has remained below the neutral level at 50. Therefore, the index will likely continue falling as sellers target the next key support at €5,7000.

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