Monthly February 2021 - Analysis & Investment strategy

Despite their sharp decline this week, the three US indices remain in territory

positive for the whole month of February 2021, the Dow Jones recording an increase

3.15%, the S&P 2.60% and the Nasdaq 0.93%. Over the week, the ACC lost 1.22%

and the Stoxx 600 2.4%, their biggest weekly declines in a month.

While the prospect of economic recovery has benefited stocks in recent years weeks, investors are increasingly concerned about the risk of an acceleration of growth and an excessively rapid rise in inflation, which manifested by the rise in yields on ten-year US government bonds with reached its highest level in one year at 1.58%.

Questions about rising interest rates dampened optimism displayed by investors due to better company results

expected, vaccination campaigns and continued budget support for

United States. These concerns are driving investors to divest more assets risky, such as highly valued technology stocks. The " PCE core '' price index, the measure of inflation favored by the Fed, has increased 1.5% year-on-year, according to data released on Friday which showed the most

sharp rise in US household spending in seven months.

Rising inflation raises fears of monetary policy changes.

But central banks say there is no change to be expected from them in the short term. This scenario favors cyclical and financial sectors which outperform the market.

Quarterly results published by companies are better than expected in both the United States and Europe. In the United States, 81% of companies in the S&P500 having released beat expectations. In Europe, 95% of companies the EuroStoxx50 which are doing better than expected. Banks outperform on the stock market thanks to results exceeding consensus expectations, resumption of payments

dividends and the prospect of a slight rise in interest rates with the recovery economic.

In the short term, the dollar could benefit from higher yields.

After hitting a new high of $ 58,354, the price of bitcoin has retreated

at $ 40,894. Holders are nervous about soaring prices

boosted by the enthusiasm of certain large companies like Tesla,

Paypal, BlackRock, BNY Mellon despite concerns from regulators and

criticism of central banks. This decline underlines the high volatility of the

main cryptocurrency.

Economic news

Euro Zone

The business climate in Germany improved more markedly than expected in February, according to the monthly survey by the institute for economic studies Ifo.

Its business climate index rose to 92.4 after 90.3 (revised) in January, while the consensus was on average expecting a figure of 90.5 after that of 90.1 initially announced for last month.

"The German economy seems to be on the way to recovery," commented Klaus Wohlrabe, economist at Ifo, specifying that the improvement in the economic situation was particularly marked in industry but also concerned construction, distribution and Services.

In the manufacturing sector, the index stood at 57.7 against 54.3 for the consensus and 54.8 the previous month.

"In the event that the vaccination campaigns allow a resumption of activity in the services and where the strong expansion of the manufacturing industry continues, a solid economic recovery could be envisaged for the second half of the year",

Inflation

The euro zone inflation rate returned to positive territory in January at 0.9% over one year, its highest level in six months, confirming the first estimate given at the start of the month.

In January, the strongest contributions to the annual price increase were those of services (+0.65 percentage point), industrial goods excluding energy (+0.37) and food, alcohol and tobacco. (+0.3), while that of energy continues to weigh on the overall rate, by 0.41 percentage point.

United States

Consumer confidence in the United States improved more sharply than expected in February. The confidence index calculated by the Conference Board stood at 91.3 this month against 88.9 in January (89.3 in first estimate) and a consensus giving it to 91.

Retail sales in the United States rebounded 5.3% in January against -1% in December and + 1.1% for the consensus, which suggests a recovery in economic activity.

Industrial production rose by 0.9% in January against + 1.3% in December and + 0.5% for the consensus.

The production capacity utilization rate rose from 74.9% in December to 75.6% in January against a consensus of 74.8%.

Inflation

Producer prices rose 1.7% on a raw basis in January year-on-year and 2% excluding food and energy.

Boston Fed Chairman Eric Rosengren has estimated that inflation is unlikely to reach the Federal Reserve's average 2% target until at least the end of 2022, confirms the Fed's will maintain accommodative financial conditions until the US labor market improves and annual inflation reaches the target. Investmen Strategy

The year 2020 will have been a very complicated year, due to a surprise pandemic, for which politicians and health professionals were not at all prepared. In response to the risk of coronavirus contamination, half of the world's population has been confined, more than half of the world economy has shut down in total synchronization: this is an unprecedented fact in the history of mankind .

The impact has been severe economically and financially, but once again central banks acted swiftly to avert a major and irreversible shock to financial markets. The decision to lower rates close to zero and to inject massive amounts of liquidity should make it possible in the medium / long term to restore purchasing power to households and refill corporate cash flows.

In this context, Covid 19 has accelerated the transformation of the economy, with major technological advances in sectors such as biotechnology and renewable energies.

At the end of the 90s, we had entered a new era, with the internet which had revolutionized information and communication technologies, leading to a large number of sectors, such as health, which entered in 2020, in a phase of strong acceleration, which will benefit above all to new health technologies, such as immunotherapy, that is to say that researchers will help humans to treat themselves with their own antibodies. In order to destroy all forms of cancer cells and infectious agents.

All these new technologies such as RNA Messenger, gene therapy, CAR T Cell and vaccines using lentiviral vectors by the HIV virus (THERAVECTYS) are in full development; COVID 19 raised awareness that the future of the world could quickly turn into an uncontrollable nightmare and world leaders acted forcefully; they understood that we had to invest heavily in health to get us out of this impasse.

All these investments will last for the next decades and I believe that immunotherapy should make it possible in the medium / long term to treat all forms of cancer, infectious diseases and cardiovascular diseases.

Hopefully human beings will be able to reach the fateful 120 years mark.

Consequently, all of these economic, financial, political and aging population parameters will be favorable to the equity and bond markets, but it will be necessary to be selective in the choice of sectors due to a clear acceleration of the world towards the new economy to the detriment of the old economy. More and more individuals are investing in the stock market, which will continue to create volatility, we will have to remain very vigilant.

The S&P 500 could climb up to 10%, to 4000/4200 points, in 2021, as the outlook for equities brightens after a prolonged period of high risk. The American economic recovery after the pandemic will be "much faster and may continue for much longer.

We are in the phase of mass vaccination, pent-up demand, greater household savings, technological advancement and the support of the Biden administration to fuel a jobs boom.

Americans increased their personal savings 173% year-over-year between March and November of last year, as disposable income exploded by $ 1 trillion and household spending fell by 535 billion dollars, according to a New York Times analysis. As the pandemic devastated the livelihoods of millions of people, the average American saved like crazy.

We favor geographic and sector diversification to take advantage of the rebound in cyclical and financial sectors in the context of an upturn in activity alongside growth sectors. Among these, technology, industry and health benefit from structural trends linked to the digitization of the economy, urbanization, aging of the population and the energy transition. Recommendations

In the short / medium term, we maintain a POSITIVE recommendation on technology stocks with careful selection, according to well-defined sectors and according to our sector investment model, in our investment strategy of January 2021.

In the long term, we remain POSITIVE on large US equity indices, Israeli equities, French small and mid caps in new technologies (through our partner AURORE fund invest), perpetual bonds which offer solid returns and long term bonds. variable rates of banks and insurers in the Euro and US zone, we favor quality through diversified bonds on a large number of issuers to better manage default risks linked to the health and economic crisis.

The key rates are kept at levels close to zero.

Overall credit spreads remain tight. We must prioritize quality through diversified bond UCIs on a large number of issuers to better manage the default risks linked to the health and economic crisis.

We have strengthened on US breakevens and maintain a positive view on long-term US real rates. According to the consensus, inflation forecasts for the next ten years are higher than a year ago, despite the multiple challenges that rocked the global economy in 2020.

For the next 2 years, our central scenario is a rise in inflation and long rates, combined with a relocation of Western industries, in order to recreate jobs, wealth and a solid recovery in global economic growth.

On the other hand, we are keeping a NEUTRAL recommendation in the short and long term, on European equity indices and high yield bonds, even if the outlook for the evolution of European companies' profits has stopped deteriorating after several months of review. decline, and that the abundance of liquidity plays a stabilizing role, but investor sentiment is still far from euphoria and oscillates between pessimism and skepticism about the evolution of the health crisis and the economic recovery that will be slower.

Diversification is the best way to reduce this volatility because although financial markets can be correlated, they do not all evolve to the same extent. Diversification involves building a diversified portfolio across all asset classes (equities, bonds, alternatives), regions and sectors of activity within the framework of a diversified portfolio of securities, l real estate, professional activity and liquidity.

All in all, it is essential that investors take this new context of greater volatility into account in their investment decisions than before the crisis. Volatility can be a source of opportunity with new investment ideas and more attractive entry points.