IBEX 35 just soared to a record high: more upside ahead?

Spanish stocks are firing on all cylinders. The closely followed IBEX 35 index has risen for three consecutive weeks, rising to a record high of €12,000, bringing the year-to-date gains to almost 20%. It has jumped by over 22% from the lowest point this year.

Central banks boosts

The IBEX 35, which tracks the biggest companies in Spain, has done well this year, helped by the ongoing actions by global central banks.

In Europe, the ECB has delivered two interest rate cuts in its bid to support the economy, which has shown signs of slowing down.

The most recent data showed that the economy grew by 0.3% in the second quarter after rising by 0.1% in the previous quarter.

There are signs that the economy is not doing well. The manufacturing PMI retreated to 44.8 in September from the previous 45.2. It has remained in the contraction zone for months. The services PMI has also softened a bit, meaning that the situation is getting worse. 

Therefore, there are odds that the European Central Bank will continue cutting rates in the next few months. Lower rates will boost Spanish companies by reducing their borrowing costs and by bringing investors from the bond market.

Other global central banks have slashed interest rates. In the UK, the Bank of England cut rates by 0.25% in July and left them unchanged this month. Analysts expect that the bank will deliver gradual cuts in the coming meetings.

The Federal Reserve has also cut rates by 0.50%, with officials signaling that more cuts were on the way. The same is happening in other countries, meaning that the cost of money will continue to fall in the near term.

Historically, global stocks rise when central banks have embraced easy money policies as we saw during the Covid-19 pandemic.

China stimulus hopes

Many IBEX 35 companies do a lot of business in China. Therefore, their stocks surged this week after the country’s central bank and officials unveiled large stimulus packages. 

For example, the central bank unlocked over $140 billion in cash, which will be used to boost the capital markets. Companies will use these funds to buy back their stocks and lend to other institutions.

Bloomberg has also reported that the government is considering unleashing over $140 billion in stimulus as the economy slows. These actions have flowed across all financial assets, including cryptocurrencies. In a note, a Bank of America strategist said:

“This is the first time the government has encouraged leveraged investment in the stock market. A liquidity-leveraged rally should still have significant room to go.”

Top IBEX performers

Most companies in the IBEX 35 index have jumped this year. Banco de Sabadell stock has jumped by over 80%, making it the best performer. Like other European banks, it has done well because of the substantially high net interest income because of higher interest rates. 

Other Spanish banks like Caixabank, Bankiter,  and Santander have risen by over 30% this year. The other notable gainers were firms like IAG, Solaria, and Unicaja Banco. 

On the other hand, the top laggards in the index are companies like Repsol, Naturgy Energy, Grifols, Enagas, and Acciona. 

IBEX 35 technical analysis

The weekly chart shows that the IBEX 35 index has been in a strong bull run this year. It has recently flipped the important resistance point at €11,465, its highest level on June 3. 

The index has moved above the 50-week and the 25-week moving averages while the Relative Strength Index (RSI), momentum, and the Stochastic Oscillator have all pointed upwards. Therefore, the path of the least resistance for the blue-chip index is bullish, with the next point to watch being at €12,100.

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