Mania’s 20.7% rise with rate cuts in the French stock market comes home

When things swell like this, no one should be surprised when they swell.

By Wolf Richter for WOLF STREET.

Of course, France is facing a complicated political situation, including early elections, which could change the political landscape. That’s what elections are for.

But why did French stocks rise 20.7% in the 7 months of Rate Cut Mania? What kind of crazy show was this? And not only in France.

France’s blue-chip stock index, the CAC 40, fell 2.7% today and 4.6% over the past two days. Over the past six trading days, the index has lost 6.7% and is down a stunning 8.9% from its all-time high on May 15.

I mean, how can stocks be allowed to fall???

And so many headlines appeared today. The Guardian: “French shares fall amid fears of far-right election victory.” FT: “French shares suffer worst week since 2022 on fears of populist victory”. Bloomberg today: “French stocks see $200 billion disappear…”

You get the idea: in France, stocks are sinking, even though everyone knew that during inflationary periods, stocks can never sink, and that they’re the best hedge against inflation or whatever, and that rates will come down and already are sitting down from the ECB on June 6th, and therefore stocks will simply continue to boom due to rate cuts, inflation and all.

So now that the theory has been debunked by events, shock is spreading through the media that had been hyping these things up all along?

But wait a minute. The CAC 40 had risen by 20.7% (1,415 points) in less than seven months from the end of October to its all-time high on May 15 of 8,240, the result of this epic Rate-Cut Mania that had also gripped Europe . . So now, the ECB has cut once, and stocks are down.

But wait another minute. The “fall” of French shares:

• Barely wiped out profits this year! CAC is down just 0.5% year-to-date.
• It only wipes out half (737 points) of Shortening Mania’s seven-month surge (1,415 points), rather than all of it plus some.
• It only returned the index to where it had originally been in April 2023, rather than carving out multi-year lows.

In other words, this is still not a true selloff, just an 8.9% decline from the all-time high. It just seems like a big deal because during Rate Cut Mania, and even before, the brains of investors and the media were fried under the illusion that stocks could never fall.

And now that French stocks are down 8.9% from their Mania-Cut-Cut all-time high, is it a scary thing that reality is allowed to seep through the veneer? ECB, please do something about this fiasco?

Stock markets in general – especially in the US – have gone crazy in recent years, and then spectacularly during the Rate Cut Mania, and the media jumped on it and hyped it up, and now that there’s a little bit of a dot fade , handwriting begins? I mean, come on. When things are inflated like this, no one should be surprised that they deflate.

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