One of the most famous quotes from investor Warren Buffett says that the first rule when you enter the markets is not to lose money, and the second is not to forget rule number one. In the Ibex 35 it has been very difficult to lose money in 2023. Its revaluation, of 22.7% in these 12 months, when it has climbed to 10,102 points, places it as one of the best stock markets on the continent, above the stock markets from Frankfurt, Paris or London. It is its best year since 2009, 14 years ago, when the main Spanish index rebounded almost 30% due to the perspective – which would later be proven wrong – that the worst of the financial crisis that began with the bankruptcy of Lehman Brothers had been over. back.
It is often said that stock markets are a leading indicator of the economy. And if investors are celebrating something in advance, it is the rate cuts to come in 2024 in both the United States and Europe. The end of an entire era of increases in the price of money to combat inflation – ten increases by Christine Lagarde and her team, 11 at the Federal Reserve – is a relief both for companies seeking access to credit and for most indebted, which have seen their interest bills rise in record time.
The Ibex 35 has participated in the euphoria regarding the foreseeable change in direction of monetary policy, but it has its own catalysts. Inditex, the most valuable Spanish firm by capitalization, around 123,000 million euros, is completing an extraordinary year, with record profits in the first nine months (4,102 million, 32% more), and its price at maximums ( rises more than 60% in 2023), which has raised the fortune of Amancio Ortega, its main shareholder, above 100,000 million for the first time.
Big banking has also enjoyed a great year. It has placed BBVA (+46%) and Santander (+35%) among the best in the index by taking advantage of the boost in its businesses in Latin America and the rate increases that have increased its profits as variable loans and mortgages have become more expensive. Finally, the good performance of tourism has translated into significant revaluations for Amadeus, Meliá and IAG, between 25% and 33%. The result: an increase of almost 200 points from the 8,229.1 with which the Ibex closed 2022.
At the head of the Ibex, however, has been a company with little weight in the index, the pharmaceutical Laboratorios Rovi, just one of the biggest laggards in 2022, which experienced an increase of more than 66%. In a year of lower oil and electricity prices, energy companies proliferate among the losers: Repsol, Redeia, Enagás, Acciona and Acciona Energía close the year in negative territory. Just like two banks, Unicaja and Bankinter, which, unlike their rivals, have not made the rate increases profitable in their prices.
The Spanish listed companies (not only the Ibex, also including those of the Continuous Market) have one of their attractions in dividends. Until November, they delivered 27,443 million euros, 18.8% more than last year, with a profitability of 4.1%. The Ibex with dividends, the one that takes into account the shareholder remuneration of the 35 largest Spanish companies, is at maximums, which means that if someone has bought shares replicating the index, they have made money no matter what, regardless of the moment in which to invest.
With inflation closing the year at 3.1% in Spain, and even lower in the euro zone, the macro context has been encouraging as the months have passed, as Arcano economist Leopoldo Torralba explains. “The better inflation data has increased expectations of greater future control. This means greater family purchasing power (higher consumption), and lower interest rates. For the stock markets, it implies greater profits for the listed companies and a lower discount rate. If we add to that still reasonable stock price multiples except in the case of large US technology companies, it is logical that the stock markets in the second part of 2023 have done well. The Ibex is not an index foreign to the global trend.”
Torralba’s reference to American technology companies comes for a year in which it has broken all profitability forecasts, with the Nasdaq 100 index rising more than 50% to new all-time highs. The great expectations aroused by the rise of artificial intelligence has given wings to the chip manufacturer Nvidia, but also to Microsoft or Alphabet, part of what is now known in the United States as the magnificent seven. The rest of Wall Street also enjoyed a year that will not be forgotten: both the Dow Jones, which groups the 30 largest companies in the country, and the S&P 500, a very valuable thermometer of corporate America due to the enormous number of The companies that make it up, half a thousand, are around all-time highs, boosted by an impressive Christmas rally.
The high returns of 2023 may inspire doubts for the prudent investor. Is it possible to maintain such a pace or are we facing the usual stock market overheating? Does the progress of the economy justify the advances or are the fundamentals being ignored? The end of rate increases and the expectation of a greater speed of cuts are cause for optimism, but the growth prospects for the euro zone for 2024 – 0.8% according to the ECB – are mediocre compared to those of the USA or China.
It can be argued, however, that in 2023 great growth in Europe was not necessary for stock markets to skyrocket, with Milan and Madrid taking the lead. The absence of recession, the idea that inflation is controlled and rates condemned to fall were enough. Not even a limping Germany on the verge of recession due to industrial decline and weak trade has been an obstacle for European squares to turn green, including Frankfurt. “Expectations at the end of the year have improved those at the beginning, both in terms of growth in Spain and globally,” summarizes Juan Carlos Higueras, doctor in Economics and professor at EAE Business School. For Higueras, it has been an “excessively good” year, which opens the door to technical corrections and profit collection in the coming months.
Dodging black swans
As Spanish Stock Exchanges and Markets recall in a report, the digestion of phenomena that were initially assumed to have the capacity to cause significant damage has been almost disconcerting. “In a global context of great complexity, characterized by the historically accelerated tightening of monetary policy, by serious entrenched or new conflicts such as the wars in Ukraine or the Gaza Strip, and by banking crises contained in the United States or Switzerland [con la absorción de Credit Suisse por UBS]the main world stock markets have obtained significant gains.”
In a market so dependent on changing moods about the future of the economy, and so based on expectations, the question is where investors set the bar for 2024. Once that favorable news is discounted, it is normal to need new gasoline. Any hint of peace in the conflicts in Ukraine or Palestine, currently unlikely, would play that role, as would a faster-than-expected stabilization of inflation or upward growth surprises. Whatever happens, the important thing for those who enter the stock market universe will continue to be to comply with Warren Buffett’s rules one and two.
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