“Rate hikes haven't yet fully impacted the economy”

The monetary tightening carried out by both the U.S. Federal Reserve (Fed) and the European Central Bank (ECB) to tackle inflation has had a strong impact on the economy of their respective regions, although as the ECB's stability report highlights, it seems that the worst “is still to come.”

Alberto Matellán, chief economist at MAPFRE Inversión, explains that rate hikes tend to impact the economy nine months or a year after they are announced, depending on the economic sector, and believes that “100% of the impact hasn’t been seen yet.” Matellán adds that, in this case, the delay in impact may be even greater for several reasons, such as previous stimuli deployed to respond to the pandemic.

“The worst may yet be ahead of us, but that doesn't mean it’ll be a disaster - there are numerous mechanisms in place to prevent that,” he says. “The road ahead won’t be easy, and part of that impact is still pending.”

However, the rate hike cycle could be coming to an end, after last week’s US inflation figure for October came in at 3.2%, down five tenths on the previous month. This expectation could be behind the current IBEX 35 rally, which has been on the rise for almost a month and is close to 9,900 points.

Matellán points to another reason for this rise: the market is starting to believe that inflation is finally being reined in, “without having caused major economic damage.” "We'll see later on if that's the real reason. If it continues, we could see new highs," he says.

Nvidia’s earnings soar

Microprocessor manufacturer Nvidia closed the third quarter of the year with revenues of $18.12 billion, 206% more than the same period last year. The surge in revenue was driven by continuing strong demand for chips, which boosted the company’s stock price to over $500 a share.

Matellán explained that the entire sector is riding on the coattails of the technological leap that is being fueled by AI. "When that happens, there’s a very strong rise in the markets, followed by normalization and then a purge to separate the men from the boys. This new technology is very interesting, but we have to see what the reality is," he says.

MAPFRE’s chief economist doesn’t believe that the technology sector will suffer a serious market correction, but he does reckon that expectations will moderate, which will in turn usher in a period of more rational pricing.