Paris Stock Exchange has seen a decline of 1.8% to 1.9%, settling around 8,040 points, following a record high driven by defense stock performance. Meanwhile, Wall Street reacted negatively to new tariffs, with the Dow Jones and S&P 500 dropping significantly. Strategists suggest these tariffs might prompt a shift of investments back to Europe, potentially boosting the CAC index. Positive economic indicators in Europe, such as slowing inflation and stable unemployment, contrast with rising bond yields, which may impact market momentum.
Paris Stock Exchange Experiences Decline After Annual High
The Paris Stock Exchange has faced a drop of between -1.8% to -1.9%, settling around 8,040 to 8,045 points. This decline follows a record high achieved yesterday, which peaked at approximately 8,258 points, largely driven by the robust performance of defense and security stocks. The anticipation of a significant boost in military spending across Europe is a contributing factor, with proposals suggesting a budget of 150 billion euros for European rearmament, available for immediate allocation.
In comparison, the CAC40 index is faring better than its European counterparts, such as the E-Stoxx50, which saw a decrease of -2.5%, and the DAX40, which fell by -3.1%, now hovering around 22,440 points, down from over 23,000 following a new all-time record. Overall, these indices have reverted back to levels observed on Friday.
Wall Street’s Reaction to Tariff Announcement
In the United States, Wall Street reacted negatively to the unexpected announcement regarding the immediate imposition of punitive tariffs on Canada, Mexico, and China, which was made around 8:30 PM. This news caused the Dow Jones to plummet by -1.5%, while the S&P 500 declined by -1.75%, marking a -0.6% decrease on an annual basis. The Nasdaq suffered a more significant drop of 2.6%. The downward trend has continued into Tuesday, with the Nasdaq down by -1% and the S&P 500 and Dow Jones also experiencing declines of -1.1% and -1.20%, respectively. The ‘VIX’ index has surged by 8.5%, surpassing 24.7, reflecting a 65% increase over six sessions.
Some strategists believe that these tariffs could backfire on the US economy, which may lead to a rotation of investment back towards Europe. If this happens, the CAC could potentially break its previous record, surpassing the 8,258 points tested yesterday and again on May 10, 2024.
Should the Paris market achieve unprecedented heights, it would indicate a strong desire among investors to prolong the upward trajectory that has been in place since late 2024. However, the ability of the market to reach new peaks will hinge not only on geopolitical developments but also on economic factors and favorable trends for the European continent.
Christopher Dembik, an investment strategy advisor at Pictet AM, highlights the positive momentum in Europe, stating that encouraging news is increasingly coming to light. He noted that inflation in the eurozone is slowing down to 2.4% year-on-year, and the French manufacturing sector is showing strong signs of recovery.
Furthermore, Eurostat’s latest figures indicate that the unemployment rate in the eurozone remained steady at 6.2% in January, aligning with expectations. On the downside, the growing interest in European stocks has sparked tensions in the bond market, with the yield on 10-year German Bunds surpassing 2.5% for the first time since February 2021, before settling at 2.48%. Meanwhile, French OATs have remained stable at 2.2200%, even as T-Bonds across the Atlantic softened by -4.5 points to 4.135%, which some analysts view as a precursor to recession following an earlier drop of -8 points.
Despite these tensions in the bond market, Christopher Dembik reassures that they currently have no adverse impact on stock performance. However, the favorable momentum observed in recent weeks may face challenges from significant upcoming events, including the ECB meeting on Thursday and the much-anticipated US employment statistics set for release on Friday.