The Brexit agreement between the UK and the European Union, along with the Italian government's upcoming budget, will be key factors influencing equity markets during the last week of November. Initially, all indications point to an upward trend, as these issues appear likely to be resolved favorably for small and medium-sized investors. This comes after a week in which the benchmark Spanish index, the Ibex 35, fell slightly more than 1,50% across the five trading sessions.
Furthermore, this week will see the release of the IFO business confidence index for Germany and the Eurozone, while the US will issue three- and six-month bonds and two-year notes. These are other highly relevant events that will determine, in one way or another, the direction not only of the Spanish stock market, but also of the rest of the world. And in any case, they will reflect how financial markets digest the important agreements discussed at the European Union summit on Brexit, which took place this past weekend.
Conversely, regarding the US economy, all eyes will be on the Dallas Fed 's manufacturing business index , which is forecast to reach 105,90. Another key data point for this region is the Chicago Fed's national activity index, also due this week. Therefore, small and medium-sized investors will have a lot of data to digest in order to take the most appropriate positions to grow their personal wealth.
Brexit: should prop up the stock market
The agreement reached on Britain's withdrawal from the European Union is expected to be a powerful catalyst for rising stock prices after the recent declines of the past few months. Indeed, some of the most prominent financial market analysts suggest it could mark the beginning of the traditional holiday rally . However, as retail investors well know, the reaction of financial markets is truly unpredictable, as investors tend to buy on rumors and sell when news is confirmed. Will this situation be the same?
On the other hand, some stocks will undoubtedly be more sensitive to this kind of news. This is true in both positive and negative ways, as has been the case in recent years. At certain times of the year, optimism in the financial markets can be the common denominator for many listed stocks. In the coming trading sessions, various financial players will find out what to do, both to buy and sell shares on the stock exchange. And there's only one month left in this year, which has been so challenging for equity markets.
Approval of the English Parliament
In any case, the biggest obstacle to a rise in the stock markets will depend on the British Parliament 's future approval of the meeting held with the European Union's governing bodies. Therefore, it will be essential to carefully consider all trades. Indeed, the initial reaction of the stock markets this Monday was clearly bullish, with the Ibex 35 appreciating by around 2%. Banks led this increase after the heavy losses they suffered in recent weeks. The gains of Sabadell, BBVA, Bankia, and Santander outperformed those of other equity sectors.
This reaction from the financial markets has led to the benchmark index of the Spanish stock market approaching the 9.200-point level . However, its performance in the coming days will be crucial to determine whether this is merely a temporary rebound or something more substantial that could propel this stock market benchmark to higher levels. One of the key reference points will be the strong support level at 9.500 points, which could even push it higher.
A fix to the Italian problem is expected
Regarding the budget that the Italian government has sent to Brussels , everything now seems to indicate that it is a strategy by the Italians to secure better terms for negotiating their debt. However, we will have to wait a couple more weeks to ascertain the true nature of this very particular situation that the EU institutions are currently experiencing. If it is definitively resolved, it could provide another strong boost to European income before the end of the year.
One of the biggest beneficiaries of this situation will undoubtedly be the banks, which could end the year in a better position than they started. It's no coincidence that this is one of the sectors that has lost the most euros over the past twelve months, with some stock market indices falling by more than 10%. To the point that it's one of the segments in the financial markets with the worst recommendations from financial analysts, who advise against buying it, leading to a clear trend of selling out of favor.
Risk of major falls
However, not all financial analysts are so optimistic about the performance of the Spanish stock market in the final days of the year. On the contrary, they believe that the Ibex 35 could reach levels very close to 7.000 or 7.500 points in the coming days , which would place this benchmark at one of its lowest levels in recent years. There is an added risk that the downward trend could be much more bearish than previously anticipated, across all timeframes: short, medium, and long term, and beyond other technical considerations, and perhaps even from a fundamental perspective.
Pending further developments, one of the key levels to watch in the coming days is the highly significant 8.500-point mark. This is precisely where the market stalled during its last decline in early November. If this level is breached, the declines in Spanish equities could undoubtedly become more pronounced, fulfilling the most pessimistic scenario outlined by financial analysts. This is despite the fact that corporate earnings for the last quarter have not been disappointing.
Waiting for the Christmas present
Within this general context, all small and medium-sized investors are waiting for the anticipated holiday rally to materialize. It's quite common for such a rally to occur around this time, but not always in the same way as last year, much to the disappointment of the thousands upon thousands of investors hoping to enter the financial markets in the days leading up to Christmas. Stock prices can appreciate by an average of around 8% . It's no wonder, then, that many are waiting for this rally to arrive so they can make their trades and thus generate returns on their savings in a very short period.
The most aggressive sectors are expected to perform best during this bullish period. Conversely, those stocks that have depreciated the most this year are likely to benefit. Banks are once again poised to lead the gains and reduce the discount at which they are currently trading. Technology stocks are also likely to show significant price increases, at the expense of defensive companies and those that act as safe havens during periods of financial market instability.
Good time for investment
In any case, December and January have traditionally been two very positive months for equity markets. This is something many small and medium-sized investors count on to finish the year strong. However, it's not a hard and fast rule , and this is a factor you should keep in mind to avoid any unpleasant surprises later on.
In one of the most complex years for international stock exchanges in recent decades. Where the Ibex 35 will probably end with double-digit declines. Although there is no lack of market analysts who think that after a course as negative as this, it is followed by large revaluations in the valuation of stock prices.