How long will the bullish rally last in the stock markets?

The bullish rally led by the European stock markets will continue until the end of the year, according to analysts' forecasts, although there are still risks that could cause a downward turn. Alberto Matellán, chief economist at MAPFRE Inversión, is confident that the improvement in optimism among investors is due to cooling inflation levels, particularly in the United States, where the consumer price index CPI for October stood at 7.7%, down from September’s 8.2%. The fall seems to be an indicator that the CPI has peaked, which would allow the Federal Reserve to slow the pace of rate hikes.

Investors didn’t want to miss out on the momentum, which in turn benefited the European market over the US. Some indices, like Italy’s FTSE MIB and Germany’s DAX 30, have rallied more than 20% since the lows seen at the end of September. The IBEX 35 also hovered around 8,200 points over the last week, a level it hasn’t reached since the end of August. According to Matellán, the good level should be maintained for the next three or four months, although the big question is what will happen in 2023.

Geopolitical risks and the possible rise in prices mean that the scenario for next year will continue to be volatile, according to Daniel Sancho, fund selector at MAPFRE Gestión Patrimonial (MGP). "Despite the fall, the CPI is still very high and the central bank playbook continues to be to reduce stimuli," he explains. Consequently, it’s best to respect the investment time frames and think in the long term (greater than 5 or 7 years), if you’re looking for good returns.

In the short term, the markets continue to be dominated by instability. This week, for example, two events triggered a correction in: the death of two civilians in Polish territory due to a Russian-made missile and inflation of 11.1% in the United Kingdom. Both events drove investors to cut back on their appetite for risk, which was reflected in a retreat on the stock markets.

These events demonstrate, according to both analysts, the low visibility in terms of getting a read on the immediate future for the stock markets. However, Matellán points out that the improvement in investor confidence is a good sign, in that it usually rebounds before other indicators, such as the purchasing managers' index (PMI) or consumer confidence barometers.