October has once again been a black month for equity markets in Spain. After having reached the annual minimums since 2006, in levels of 8.800 points and have ended the uptrend of many years ago. During the days of this difficult month, all the companies listed in the benchmark index, the Ibex 35, have left billions in the valuation of their companies. In one of the most negative periods since the economic crisis ended in 2007.
There are many reasons that explain the performance of the Spanish stock market and that as a whole have led to the current trading levels being reached. Not only because of international economic problems, but also because of domestic incidents. Where the values of the banking and electricity sector they were the worst offenders out of this black month on the stock market. With sector depreciations close to 5%. In one of the darkest months for both stock market sectors for many years.
In any case, from now on we are going to identify the reasons why national equities have behaved in this way. Of course, there are many explanations that must be analyzed to understand what has happened in the financial markets in this period. So that in this way, you can develop your investment strategy more effective. Hoping to save the furniture for the end of the year in a year in which the Ibex 35 has dropped more than 10%.
Black October for banks
Banks have been one of the most affected sectors during this period. In it has played the Supreme Court ruling on the return of some commissions to users. With falls above 5% in all financial groups in a very short space of time. It has also influenced the problems that are being generated within the European Union, especially the tensions with the Italian government. All financial analysts believe that it is necessary to stay out of the financial sector while the uncertainties last.
On the other hand, electricity companies have been another of the great victims of this selling trend in the month of October. In this case, derived from the fact that they have been subject to more taxes on their profits in the measures carried out by the current government in the development of the general state budgets. A factor that will lead them to reduce your business profits. Now we will have to wait for the resolution that the judiciary takes on this incidence in mortgage loans.
Reaction to previous hikes
Another reason to explain this black month for the stock market derives from the fact that there have not been very important corrections to the rises in recent years. And as a consequence of this stock market incidence, there has not been an adjustment in supply and demand in the price of the shares. From this point of view, according to some analysts, this drop in prices may only be due to a one-off cut that can last for a few more weeks. Depending on the possible breakage of supports of some relevance.
On the other hand, it cannot be forgotten that the stock market has hardly had any significant drops since 2014. And now is the time to correct the scenario of overbought showing Spanish equities. Although in this case influenced by a whole series of very positive news for the financial markets. In any case, generated under the fact that they have not been expected by small and medium investors. The most important thing from now on will be how the selective index of the national stock market will end the year. It will set the tone for decision that investors are going to take for next year.
Slowdown in the economy
There is no doubt that this phenomenon has had a lot to do with the declines that have occurred in equities in these days of October. This is explained by the fact that a good part of the economic reports prepared by the most relevant international organizations have emphasized a slight slowdown in growth expectations for the next few years. In this sense, it should be noted that the data from the National Institute of Statistics (INE) through the leading indicator of the Quarterly National Accounts corresponding to the second quarter show that the Spanish gross domestic product (GDP) has grown by 0,6% in the second trimester. This data is one tenth less compared to the previous period.
On the other hand, the latest reading of the composite index of leading indicators contains very revealing data on this trend. By showing the lowest level of the last five years in the trend of the economic activity, to the point that it already accumulates six consecutive monthly falls. In the case of Spain, it has gone to 99,52 points from the previous figure of 99,64 points. A factor that shows a certain relaxation in the growth of the Spanish economy.
Benefit reduction
And how could it be less, the equity markets have discounted these predictions from the prices of listed companies. Precisely in a month like October is that very sensitive to this kind of macroeconomic analysis. Because everything also seems to indicate that this trend will continue, at least in the coming months or quarters. Reflecting on the valuation of the shares since investors fear that there will be an economic stoppage of some importance from now on. Even with a cut in the profits of publicly traded companies.
Even though October is traditionally a month for the national stock market, in a few years the valuation of the shares has depreciated as in this 2018. To levels not imaginable just thirty days ago and that in any case have led to many losses to small and medium investors.