INFOGRAPHIC. Because the level of the financial markets is not so aberrant

So what’s happening in the financial markets? The question has been on everyone’s lips for months, but it comes back more and more frequently. And rightly so. Because hardly a week goes by without Wall Street, the CAC 40 or bitcoin setting a new record, which further feeds the impression of a financial world totally disconnected from reality, while the Covid crisis is not entirely behind us. Yet these levels are not that aberrant. It is also almost the opposite … Explanations.

  • Market capitalization record

The figure made the buzz. A few days ago the total value of the world stock exchanges exceeded for the first time … 120 trillion dollars. On paper, this figure seems completely absurd and reflects an increase of more than $ 30 trillion in one year. To understand what it represents, you have to tell yourself that 30 trillion is almost the totality of the American stock market!

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How to explain such an escape? Financial markets benefit from several elements. First, the monetary policy of central banks, which have injected liquidity into the markets like never before. According to estimates, they have put on the table between 12,000 and 15,000 billion dollars since March 2020. “We have never seen this before,” explains Christophe Barraud, chief economist and strategist at Market Securities.

Markets also benefited from massive US stimulus plans, particularly in the United States where the Biden administration has just imposed a two-tier vote – including one on infrastructure – for a total of over $ 2 trillion. But more than that, it is above all the economic recovery and corporate results that are driving equity markets. “The economy has experienced a very strong recovery in 2021, especially in the United States where the growth rate is moving on a higher trajectory than before the crisis”, emphasizes Nicolas Chéron, strategist at ZoneBourse. As a result, the performance of listed companies is at a record level, even their dividends and investors are betting on them more than ever.

However, the risk of overheating is very present. The “price / earnings” ratio, that is the ratio between the share price and the profit, which is a reference indicator, continues to grow in many sectors. In the Tech sector it is even at historic levels for many companies. While the “P / E” ratio in the auto industry averages 10, Tesla’s is over 500 … “In some sectors in the US, we are at or even above this level we saw before the outbreak. of the Internet bubble “, warns Vincent Boy, IG France’s Market Analyst, specifying that these increases are taking place in markets in” full transformation “.

  • Top cryptocurrencies

The cryptocurrency market is also in great shape. In recent weeks, it has crossed the “capitalization” threshold of $ 2.5 trillion. In one year, this represents a 700% increase: a year ago it weighed “only” 400 billion dollars. But are bitcoin and other digital tokens rising for the same reasons as stock markets? If the monetary policy of central banks has benefited them, the other driver of their rise is mainly on the development side of the ecosystem, which now includes hundreds of start-ups, particularly in France such as Sorare and Ledger, which already weigh differently. billions. The arrival of payment giants like PayPal and Mastercard or Tesla has also given the industry a boost. “The industry is much more mature than it was two or three years ago,” explains one investor.

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  • Gold is approaching an all-time high

This is the paradox of the situation. While the markets are in excellent shape, gold, which is considered THE safe haven, should be down or at least stable. But this too is on an upward trajectory. This is certainly not as violent as stock markets and cryptocurrencies, but it is reaching an almost historic level. These days, the ounce is worth a little over $ 1,800.

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The express

So, simple effect of the liquidity injections? In reality, things are a bit more complicated. The continued rise in gold is first and foremost a sign that a growing number of investors expect the market to decline. “When you inject trillions into the economy, of course, it starts again. The real question is that of sustainability”, explains Nicolas Chéron. Several elements could in fact derail the markets: a new outbreak of the epidemic at a global level with its consequences on the economic stop and go and above all a slip in inflation, or a rise in prices, which investors fear, according to a simple mechanism. : inflation raises interest rates, and therefore the borrowing rate of the states, which become very attractive. However, according to the latest data, inflation is at its highest for at least ten years almost everywhere on the planet …


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