Matellán: 'Company earnings will continue to be good'

The first trading week of the year was accompanied by caution in the markets following the bullish rally at the end of 2023, with falls in both fixed income and equities, but investors have reasons for optimism: the expectation of rate cuts, which is expected to materialize this year, could give a boost to equity prices.

However, for Alberto Matellán, chief economist at MAPFRE Inversión, the key lies in the resilience shown by companies throughout 2023, despite monetary tightening, persistent inflation and weakened growth. Likewise, the impact of interest rate hikes seems to have already passed or be close to ending, which alleviates potential enterprise-level damage.

Fixed income, for its part, looks set to be an interesting market this year in light of predicted central bank rate cuts, which is expected to have a positive impact on this asset class. However, Matellán recalled that bonds play more of a role in providing shelter or recurring income than in boosting immediate profitability.

Investors will be on standby in the coming days for the start of the earnings season in the United States, where “relatively good” numbers are expected. “Considering the various challenges they had to deal with in 2023, companies fared pretty well overall,” explains Matellán, who emphasizes that markets will be paying close attention to future forecasts.

In Europe, companies may be more affected by more accentuated economic weakening, although MAPFRE Inversión’s chief economist believes they will maintain earnings levels. “Europe is a tremendously export-driven region and enjoys exposure to many areas, which gives its companies greater capacity for resistance and facilitates them in disconnecting from the European cycle,” he said.

2024 outlook for the financial sector on the stock exchange

The financial sector is one of the sectors that benefited most from monetary tightening by central banks but there’s no guarantee that this year will play out along the same lines, with some expectations of up to five rates cuts from the Fed and four from the European Central Bank (ECB).

Matellán adds that the banking margin tends to grow when rates rise and fall when they drop, although there is another factor that must be taken into account: the default rate, which suffers when growth slows. “It’ll be worse in Europe and that hits your margin,” he points out.

An “exaggerated” expectation of lower rates

Rate rises have moderated to a large extent in the last year, leading the markets to be hopeful of a forthcoming drop, or successive drops. However, Javier Lendines, general manager at MAPFRE AM, cautions against exaggeratedly optimistic expectations.

"Central banks have said time and time again that interest rates will remain high for a sustained period, and they have sacrificed other goals and taken decisions to aggressively raise rates, and we believe they will not be rushed into reducing rates. Talk of up to five cuts is wildly exaggerated. Rates won’t be cut by anything like that under the current scenario," he explains.