Flying shares, record banking sector. What if the market is getting it all wrong?

The European banking sector is among the most stock market sectors performers of the last few weeks. The STOXX 600 Banks it ranks at the top of the weekly returns ranking and at the top of the monthly ones. More in detail, although it presents a trend Negative YTDthe annual trend is among the best of the European stock market indices.

This evidence is confirmed by bank stocks, which have been delivering excellent performance to their investors since October. The fear of an economic recession caused by an excessive increase in interest rates by the Federal Reserve is increasingly felt, as expressed by the performance of the bond, commodity and currency markets. The equity sector is missing, which at the moment does not value the risk of recession, creating even more hype for the long-awaited “Christmas rally”. Specifically, the banking sector to date does not give any weight to this situation, creating doubts about the type of recession that Western markets could face.

The banking sector does not intend to stop

One of the fastest growing sectors of the European equity sector is the banking sector. Although there was a slight decline in the week to 21 November, banking stocks come from a long line of positive weeks. Among the most traded is Intesa Sanpaolo, which has shown a positive trend of more than 30% since October. The same goes for the other stocks belonging to the same sector, as confirmed by the trend of the European index.

Equities ignore recession risk

The stock market is probably pricing in the expectation of a easing of monetary policy of central banks given the reduction in the inflation data released in November. The most attentive observers, however, will have become aware of a certain discrepancy existing between i recessive fears And the performance of the sharesspecifically the banking sector. In fact, it is not logical to expect a recession and at the same time to see a massive increase in the purchase volumes of securities belonging to this sector. This evidence represents an important one anomaly and creates the basis for hypothesizing a different recessionary scenario compared to the past ones, first of all that of 2008. Some analysts rather expect a panorama inflationary and likewise recessive much more similar to what happened during the crisis of the 70s.

Is the market wrong?

A famous maxim that comes close to dogma for many traders and analysts is «the market is never wrong». In fact, the market is not an interlocutor with whom you can start a discussion, that’s just the way it is. But it also represents the expression of the expectation of stock market operators. It is therefore possible that this restart of the market is a mistake evaluation of the latter?

Looking at the facts, it could also be: tech companies, and others, have begun major downsizing of their workforce in anticipation of a significant correction in their fundamentals. This could be a sign of change from the past and from the (strangely positive and promising) third quarter revenue and profit data released.