The CAC 40 index, which tracks the largest companies in France, had a lackluster performance in 2024, underperforming most of its global peers. It fell by over 3% during the year, while the German DAX index rose by 18%, and the S&P 500 and Nasdaq jumped by over 20%. So, is it safe to buy French stocks in 2025?
Why French stocks plunged
There are three main reasons why the CAC 40 index fell even as the European Central Bank delivered four interest rate cuts during the year.
First, France went through a political crisis in 2024, leading to a credit rating downgrade by Moody’s, which noted material weakness of its finances. The crisis led to the collapse of Michel Barnier’s government.
A key concern is that the French government has accumulated substantial budget deficits. The budget deficit is expected to be 6.1% of the GDP, higher than the expected 4.4%. This figure is much higher than EU guidelines, meaning France could face a debt crisis in the next decade.
Second, the weakening Chinese economy had a major impact on French companies, many of which generate most of their sales there. China’s retail sales struggled, impacting companies like LVMH, Kering, and Pernod Ricard, which have one of the biggest weightings in the index.
Third, there are also concerns about the European economy, where these companies generate most of their sales. Some key European countries went through a deep slowdown, pushing the ECB to deliver four cuts to stimulate growth.
Top CAC index laggards and leaders
Most companies in the CAC 40 index were in the red in 2024. Kering stock plunged by over 40% in 2024 as the parent company of Gucci, Bottega Veneta, and Brioni, plunged by more than 40% during the year as the company issued multiple profit warning statements.
Analysts believe that Kering is facing a more dire crisis as its flagship Gucci brand loses its appeal among wealthy people. Failure for the brand to recover could affect Kering’s business in the long term.
Stellantis stock price crashed by 40% during the year as the company faced a major crisis that led to the CEO’s ouster. The main issue is that, like other European rivals, Stellantis is now contending with cheap Chinese vehicles that are slowly gaining market share.
Stellantis shares also crashed because of its prolonged underinvestment in flagship brands like Chrysler, Jeep, Alfa Romeo, and Maserati. As a result, none of these brands have the appeal they once had in the past. A US politician is even calling for Stellantis to spin off its American brands.
Edenred stock also fell by over 40%, which the company blamed for the macro environment. In response, the firm increased its share repurchases to over 600 million euros and reiterated its commitment to hit 10 billion euros in revenues by 2030.
The other top laggards in the CAC 40 index were Dassault Systemes, L’Oreal, LVMH, and Bouygues, which all fell by over 10%.
Conversely, the best-performing companies in the CAC 40 were firms like Accor, Schneider Electric, Essilor Luxottica, and Renault.
CAC 40 index analysis
The daily chart shows that the CAC 40 index has been in a strong downward trend in the past few months. This sell-off happened after the index peaked at €8,257 in May this year. Since then, the index has constantly made a series of lower lows and lower highs.
The CAC 40 index has remained below the descending trendline that connects the highest swings since May. It has also moved below the 50-day and 100-day moving averages.
Therefore, the index will rebound in 2025 as investors buy the dip in the recent laggards. This rebound will be confirmed if the stock rises above the descending trendline. If it happens, the next point to watch will be at €7,800, the highest swing in September.
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