Investment Clock insights

Markets keep calm and ‘march on’ after Macron victory


Trevor Greetham

8 May 2017

Victory for Emmanuel Macron in the French presidential election has been greeted with satisfaction, rather than euphoria by financial markets, with the euro holding on to recent gains and stock prices rising slightly. The polls were so strongly in Macron's favour in the head-to-head with Marine Le Pen that almost all of the good news was factored in last week, after he came out in top place in the first round.
Markets would have been seriously upset by a Le Pen win, which could have called into question the integrity of the euro area, setting off financial strains that would make Brexit look like a walk in the park.
Macron's first challenge is to attract political backing, to form a government that allows him to implement the reforms France needs, in order to bring down unemployment and solidify support for the European project. However, June's parliamentary elections don't carry the same near-term risks for financial markets as the presidential election. 
Stock prices tend to be sideways and volatile over the summer months (chart 1). With investor sentiment getting bullish again (chart 2), stock prices are vulnerable to a setback on heightened geopolitical stress or signs that global growth is coming off the boil. We have lightened up our equity exposure in the multi asset funds we manage, with a view to buying back at lower prices, if markets do dip. Longer term, we see a continuation of the positive backdrop of recent years, with loose monetary policy and steady growth driving stock prices higher. 

Victory for Emmanuel Macron in the French presidential election has been greeted with satisfaction, rather than euphoria by financial markets, with the euro holding on to recent gains and stock prices rising slightly. The polls were so strongly in Macron's favour in the head-to-head with Marine Le Pen that almost all of the good news was factored in last week, after he came out in top place in the first round.

Markets would have been seriously upset by a Le Pen win, which could have called into question the integrity of the euro area, setting off financial strains that would make Brexit look like a walk in the park.

Macron's first challenge is to attract political backing, to form a government that allows him to implement the reforms France needs, in order to bring down unemployment and solidify support for the European project. However, June's parliamentary elections don't carry the same near-term risks for financial markets as the presidential election.

Stock prices tend to be sideways and volatile over the summer months (chart 1). With investor sentiment getting bullish again (chart 2), stock prices are vulnerable to a setback on heightened geopolitical stress or signs that global growth is coming off the boil. We have lightened up our equity exposure in the multi asset funds we manage, with a view to buying back at lower prices, if markets do dip. Longer term, we see a continuation of the positive backdrop of recent years, with loose monetary policy and steady growth driving stock prices higher. 

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The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.