Analyst states that after the start of the drop in interest rates in the USA he became even more pessimistic about the Brazilian stock market; understand the reason
Historically, the stock market usually enters an appreciation cycle in the last three months of the year. This movement is known by investors as end of year rally or Christmas rally.
In 2023, for example, between October and December the Ibovespa rose 15%. Thus, with the beginning of monetary easing in the United States, Matheus Spiessan analyst at Empiricus Research, believes that Brazil “had a very promising window to surf the end-of-year rally”.
It turns out that, even with the cut in American interest rates, a document released by the Lula governmenton Friday (20), appears to be a new obstacle for the Stock Exchange.
The bad news caused the Stock Exchange to fall 1.55% in trading on the same day and, since then, the Ibovespa it was “zero to zero”. Likewise, the Focus Bulletin registered a new increase in expectations for Selic and IPCA.
Thus, given the data revealed in the document presented by the government, will this time the Brazilian Stock Exchange be outside the end of year rally?
Neither Selic nor Fed: what is the stock market’s obstacle now?
Last week the Fed (North American Central Bank) began the long-awaited cycle of monetary easing in the United States. THE 50 point cut The interest rate was already what most markets expected.
On the same day, the Copom announced, here, a increase of 25 points in Selic. The expectation was that the combination of these two movements could bring a boost to the Brazilian Stock Exchange.
The reduction in American interest rates should stimulate foreign migration foreign capital for emerging markets, such as Brazil, while the rise in the Selic would serve as a reaffirmation of the credibility of the Banco Central and would also help anchor future interest expectations.
However, the Brazilian Stock Exchange barely had time to take advantage of the long-awaited cycle of easing American interest rates because, days after “Super Wednesday”, the government presented the bimonthly income and expense report.
The numbers were surprising negative the markets. The government was expected to present a blockade of R$5 to R$10 billion with discretionary (non-mandatory) expenses, as mandatory spending exceeded the projection. However, that's not what happened.
On the contrary, in August the government carried out a blockade of just R$2.1 billion e, at the same time, reverted to zero the R$ 3.8 billion contingency in July.
In other words, in practice, the government ended unfreezing R$1.7 billion. But the big issue is that expenses are not yet adjusted, explained Spiess.
In this sense, the numbers released by the report raise doubts about the government's ability to reach the primary deficit.
For the analyst, it is possible that this goal will be achieved, however “the government seems to be leaving the final adjustment of spending until 45 minutes into the second half”.
In other words, Matheus Spiess believes there will be a more severe cut in the next report in November. In practice, this “strategy” can resolve the issue of expenses, however, it has negative impacts on the Stock Exchange in gift.
The analyst explains that the market tends to anticipate a future that “seems increasingly perverse” without a solution to the fiscal issue. As a consequence, it is “discounting” the stock market price unanchoring of expectations.
Another effect of the government's attitude is the increase in expectations of higher interest rates in 2024 and in the coming years. According to the analyst, in the absence of a fiscal anchor, the need for an anchor grows monetary.
In this sense, Selic's expectations rose from 11,25% last week for 11,50%. This just six days after the Central Bank raised interest rates in 25 points.
Due to these factors, the analyst points out that he is more pessimistic about the stock market now than before the interest rate cut. But, at the same time, he still sees a credible path for the end of the year to be good.
What does the stock market need to enter the year-end rally?
Matheus Spiess points out that “there is still room for optimism, but with due responsibility”. Therefore, he believes that the end-of-year rally can happen, through two signals.
The first of them is that interest rates continue to fall abroad and this could cause the real become more stable. And the second would be precisely for the government to carry out a greater cost containment.
These two factors could contribute to the return of foreign capital to the Brazilian Stock Exchange, as we saw in August, and bring an appreciation to risk assets, explained the analyst.
In this sense, Empiricus analysts continue to bet that the Brazilian Stock Exchange has a chance of ending with a positive sequence in 2024, but for this moment the house has opted for portfolio risk reduction.
The 10 shares portfolio, which brings together the house's main recommendations, has assets with low leveragebut which are also “very cheap”.
According to analysts, these shares “are in a very attractive valuation level and can capture more intensely the flexibility of interest rates abroad”.
And you can have access to full portfolioin a way free. During his participation in Giro do Mercado, Matheus Spiess provided a link for investors interested in learning about Empiricus Research's recommendations on where to invest now.
In the material, analysts explain in more detail what is at stake for the Brazilian stock market and reveal the 10 recommended shares, as well as their respective theses.
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