May 2024

After a lackluster April, the main stock markets resumed their upward trend in May. The EuroStoxx 600, the S&P 500 and the Nasdaq respectively increased by 3.3%, 4.8% and 6.3% between April 30 and May 31.

Since its low point in October 2023, the European stock market (Stoxx Europe 600) has risen by about 24%, a rather brisk pace. Many are asking us if it’s not too late to invest, as the market is “at its all-time high”. It would obviously have been better to deploy capital before the rise, if that was possible. Nevertheless, this commendable caution, which resonates like a clamor in the market, calls for the following remark: stocks are ownership rights of commercial companies. As such, they entitle their holders to a share of the profits of the said companies, and this for an indefinite duration. Their valuation on the stock market depends on these profits but also on the risk appetite of investors. It is commonly accepted that investors expect a return of around 8 to 10% in the long term as compensation for the financial risk they take. This is what is called the “cost of capital”.

Thus, considering the diversification offered by an index such as the StoxxEurope 600, it is legitimate to hope for a performance of 8 to 10% per year in the long term. Clartan Valeurs, which is celebrating its 33rd anniversary this month and is mainly invested in European stocks, has precisely shown an increase of nearly 8% per year over this long period. Over nearly 100 years, the leading American index S&P 500 has recorded an annualized increase of 10%. The exercise is not only theoretical, but also practical.

The counterpart to this exceptional appreciation for the patient investor is a high volatility linked to the permanent uncertainty that prevails over the economic outlook and the results of each individual company.

Such an annual progression of 8 to 10% is exponential. At this rate, the capital increases by +140% over 10 years, +450% over 20 years, and +1200% over 30 years. It is therefore quite normal to be close to historical highs most of the time. Seeing the indices significantly below their peaks, as in 2020 or 2022, is actually the exception rather than the rule. This occurs during a recession or a strong economic slowdown, on average every 8 to 10 years. To determine if the timing is not too unfavorable for investing, it is rather the profit expectations and valuations that need to be evaluated.

The wisest thing to do is to deploy funds when they are available, taking care to always have enough cash to meet current expenses, other necessary investments such as housing, and to keep a cushion in case of unexpected events.

Clartan funds are up in May: Valeurs up by 3.4%, Europe by 6.1%, Ethos by 5.5%, Evolution by 2.7%, and Patrimoine by 0.4%.