Is it safe to buy the CAC 40 index at its record high?

The CAC 40 index surged to the highest level on record as European stocks continued to outperform their American peers like the Nasdaq 100, Dow Jones, and the S&P 500. It rose to a high of €7,366, meaning it has jumped by over 31% from its lowest level in 2022.

France stocks gain momentum 

The CAC 40 index has surged in 2023 for a number of reasons. First, it surged because of the relatively warm winter, which invalidated the previous concerns about a major recession in Europe because of soaring natural gas prices. Instead, gas prices have dropped to their lowest levels since 2021 and there is a possibility that the situation will continue for a while. 

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Besides, companies like Germany have boosted their liquified natural gas (LNG) imports from the United States and Middle East countries. As a result, analysts expect that European countries like France will do well this year. 

Second, there was a general view that European companies were excessively undervalued. Even today, the average price-to-earnings (PE) ratio of the CAC 40 index is about 14 compared to the S&P 500 average of over 20. The weaker euro contributed to this undervaluation. In technical terms, the index was also severely oversold. Therefore, investors believe that it is easier to find bargains in France than in the US.

Third, the CAC 40 index has surged because of the reopening of China. Most companies in the index do a lot of business in the country. A good example of this is luxury brands like LVMH, Kering, and Hermes. Therefore, investors believe that these companies will do much better in their core Chinese market. Also, Chinese travelers will help to boost their sales. 

ST Microelectronics is the best-performing CAC 40 constituent in 2023 as its stock jumped by over 41% because of China”s reopening. It is followed by Renault, the global auto giant. Its stock has risen by 39% after the company readjusted its long-running partnership with Nissan. Other top performers in the index are Publicis, Kering, BNB Paribas, and LVMH. 

CAC 40 index forecast 

The daily chart shows that the CAC index has done well in the past few weeks. It jumped to a record high of €7,366. As it jumped, the index managed to move above the key resistance at €7,350 (2022 high). The bullish trend is being supported by all moving averages. A closer look shows that the 200-day and 50-day moving averages made a golden cross a few months ago. 

Therefore, the outlook of the index is bullish, with tjd next key level to watch being at €7,500. A drop below the key support at €7,200 will invalidate the bullish view.