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Only 2 CAC 40 constituents have risen in 2022. Is it a buy

By:
on Sep 29, 2022
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  • CAC 40 index has been in a strong bearish trend in 2022.
  • It crashed to the lowest level since February 2021.
  • Most CAC 40 constituents have crashed in 2022.

The CAC 40 index plunged to the lowest level since February 2021 as risks in the French economy continued and the EUR/USD crashed. It was trading at €5,962 on Thursday, which was about 23% below the highest level in 2022. 

European risks rise

The CAC 40 is one of the biggest indices in Europe. It is made up of some of the biggest companies in France like Dassault, LVMH, and L’oreal. Most of these companies have global operations and generate most of their income in the EU, Asia, and the United States.

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The CAC index has retreated sharply in the past few months as risks in Europe rise. First, there is the risk of energy considering that natural gas prices have surged in the past few months. Still, unlike Germany, France is not exposed much to Russian gas. 

Instead, the country imports most of its gas from other countries in the Middle East. It has also maintained some of the biggest nuclear power plants. However, most companies in the CAC 40 index are struggling as the European economy skids into a recession. 

The index has also struggled because of the plummeting euro. The currency has fallen by more than 15% this year against the US dollar. This happened since the American economy seems to be recovering at a faster pace than Europe.

In addition, the Federal Reserve has emerged as one of the most hawkish central banks in the developed world. As we wrote here, the Fed has hiked interest rates by 300 basis points this year and analysts expect two more increases this year.

A weak euro has mixed impact on CAC 40 constituents. For example, it has positive impacts on firms like LVMH, Thales, TotalEnergies, and Sanofi that sell their products in USD. On the other hand, it hits companies that specialise in imports.

All but two CAC 40 constituents are in the green this year: Thales and Total. The worst performers are firms like Alstom, Eurofins Scientific, Saint Gobain, and Veolia.

CAC 40 forecast

cac 40

The daily chart shows that the CAC 40 index has been in a strong downward trend recently. This week, it managed to move below the important support at €5,798, which was the lowest level in July. 

The stock’s downward trend is being supported by the 25-day and 50-day moving averages while the Awesome Oscillator and the Relative Strength Index (RSI) have continued falling. Therefore, the index will likely continue falling as sellers target the next support at €5,500.