What next for the CAC 40 Index as it sinks into a correction?
The CAC 40 Index has dropped into a correction after falling by ~10% from its highest point this year. It slipped from €8,645 in February to €7,807, its lowest level since September last year. This trend may continue as the Iran war escalates.
French stocks are falling amid the ongoing Iran war
The CAC 40 Index has come under pressure this month, mirroring the performance of other European stocks, which have plunged during the ongoing Iran war.
European companies will be among the most affected because of the bloc’s dependence on the Middle East. As a result, European gas prices have jumped by triple digits since the war started.
Therefore, there is a likelihood that many companies in the index will see higher costs as the war continues.
At the same time, the European Central Bank (ECB) has hinted that it will hike interest rates later this year as inflation continues rising. Analysts at key banks like Barclays and Goldman Sachs have predicted that the bank will deliver two rate cuts this year.
This explains why French bond yields have continued rising this month, moving from a low of 3.219% earlier this month to 3.62% today.
Many French companies are also contending with key developments in key countries like China and the United States. For example, luxury brands like LVMH and Kering are still experiencing slow revenue growth in China as retail sales remain under pressure.
Most companies in the CAC 40 Index have continued falling in the past few weeks. Compagnie de Saint-Gobain's stock has dropped by over 23% in the last 30 days as demand for its products continued to wane.
Pernod Ricard's stock has dropped by 23% in this period as its sales in China and the United States have continued slowing. In a statement, the company said that it was now focusing on cost savings to offset its slow growth. Its total sales in the first half of the year dropped by 25% to over €5.25 billion.
EssilorLuxottica's stock has dropped by 20%. Similarly, Accor stock has dropped by 19% as the company sees weak demand in key Middle East markets as the war continues. Other top laggards in the index were companies like Airbus, Stellantis, Hermes, Renault, Safran, and LVMH.
On the other hand, companies like TotalEnergies, Dassault Systèmes, Euronext, ENGIE, and AXA were among the top gainers in this period.
CAC 40 Index technical analysis
CAC 40 Index chart |Source: TradingView
The daily timeframe chart shows that the CAC 40 Index has slipped sharply in the past few weeks, moving from a high of €8,645 in February to the current €7,800. It has dropped below the key support level at €7,883, its lowest level in November last year.
The stock has already plunged below the 50-day and 200-day Exponential Moving Averages (EMA). Also, the Relative Strength Index (RSI) has moved from the overbought level of 74 to the current 32. The Percentage Price Oscillator has dropped below the zero line.
Therefore, the index will remain under pressure in the coming days or weeks and then bounce back when signs of the war ending start showing. It may drop to the key support level at €7,500 and then bounce back.
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