European stock markets, and particularly the Spanish one, may still have "more to give”

The upturn in inflation in the United States has attracted investors' attention, who see their expectations of a rate cut disappearing into thin air. “We’ve been delaying declines for weeks, and growth and inflation in the United States are two things preventing that from happening,” explains Alberto Matellán, chief economist at MAPFRE Inversión.

However, the poor inflation rate in the United States hasn’t slowed down the European Stock Exchanges, which are still on the up and up. “European stock markets, and the Spanish one in particular, may still have more to give,” says Matellán. Specifically, the IBEX 35 can bring good tidings for a number of reasons: Spain is starting to leave behind certain problems, along the lines of the other surrounding countries, which in turn is delaying the lowering of rates. Higher rates for a longer period of time benefit the banks, who have an outsize weighting on the Spanish index.

Consumer goods companies stand out among the risers, after Spain’s Inditex and Germany’s Zalando reported good earnings. "Almost all consumer goods companies are global nowadays, very few of them focus on a specific area. This, together with improved data in Europe, is helping these companies beat expectations," says Matellán.

He also adds that employment hasn’t sunk sharply, so it looks like “we can get over this bump without any real damage to the labor market, which gives consumers confidence.” “Consumption is more a function of confidence than income, which is giving it a boost,” he said.

For a few months now, the U.S. tech sector has been among investors' preferred sectors, driven by the rise in AI stocks. That caused valuations to rise significantly, but Matellán believes they may still have a long way to go. However, he cautions that higher stock prices carry with them higher risk, noting that while there are companies in Europe that have experienced similar rises and still have a long way to go, but they go relatively unnoticed.

Problems in the banking sector?

The situation of banks is a cause for concern for the European Central Bank (ECB), which has warned of the first signs of impairment in the quality of European banking assets, especially those linked to the real estate sector. However, the chief economist at MAPFRE Inversión believes that provision levels are sound.

"Through both regulation and the business itself, all European companies have learned from what has happened in the past and they open provisions as soon as is necessary. Furthermore, balance sheets are much more solid than before, not only for provisions, but also for assets and liabilities," says Matellán.

In addition to stronger balance sheets, it should also be noted that impairment of real estate assets is much more limited than in the past and that diversification is greater.

"Banks are reacting to the reduced possibility of lower rates, which favors the banking business, but there is another thing that also favors them. A bank's credit margin depends on two things: the rate differential and the default rate. If economic expectations improve, bank margin expectations will also improve," he noted.