“The political blockade in itself doesn’t affect markets”

The results of the July 23 elections opened up many unknowns regarding the formation of the government of the next legislature, as neither of the two main parties achieved an absolute majority. Although situations of uncertainty often lead to falls in the markets, as has happened at other times with the outbreak of COVID-19 or the war in Ukraine, a political blockade doesn’t usually have a major impact.

"The political blockade in itself doesn’t affect markets. It may delay certain business decisions, but what matters to investors is institutional stability," explains Alberto Matellán, chief economist at MAPFRE Inversión.

Matellán also points out that changes in this regard tend to have an earlier impact on fixed income. "Italy is a good example. When the current government was formed, there were many criticisms, but the reality is that economic measures have been received well and fixed income has improved a lot," he said.

Beyond Spanish political circumstances, central banks and their decisions on monetary policy are the main driver of the markets currently in Europe and the United States, and they have been for the past year, with the first interest rate hikes in more than a decade.

The Bank of Japan, for its part, had remained indifferent to tightening by the Federal Reserve (Fed) and the European Central Bank (ECB), maintaining its lax policy with interest rates in negative territory. “The Bank of Japan may give an interesting message of change,” says Matellán. In any case, inflation in Japan hasn’t increased as sharply as in the West and stood at 3.3% in June.

The price of oil could cause inflation to resume its upward trend, but Matellán believes it’s still too early to call it. “It's too early to think about it yet, because the rises in recent weeks are within what’s reasonable and, for them to impact, they have to be maintained for a long time,” he explains.

Business results are proving to be better than expected

Corporate reporting for the first half of the year, which is underway both in Europe and the United States, is proving to be better than initially expected by analysts. Matellán particularly highlights the banks, which are making the most of the rate curve.

"They’re the perfect example of how interesting it is to focus on the future: what's headed our way in the coming months, instead of dwelling on the past," he highlights.

Nasdaq companies are rising very strongly. Matellán suggest two reasons beyond earnings that could explain the strong performance. The first is the surge of interest in AI projects, notwithstanding the litany of issues pending resolution, which is already attracting investors. The second reason is that large companies have a lot of weight in the indexes, and when they rise, so too does the overall index.