The CAC 40 Index began 2026 with notable resilience, climbing to its highest closing value since mid-November. Despite lingering concerns over global trade volatility, the French benchmark benefited from a robust rotation into high-conviction industrial and defense sectors, reflecting a broader European trend toward capital market stability. This positive trajectory places the index just 0.77% shy of its all-time record, signaling strong investor confidence as the new fiscal year unfolds.

Defense and Industrials Drive Momentum

The index’s 0.56% rise on the final trading day of the week was primarily fueled by a surge in defense and aerospace giants. Safran SA and Airbus recorded significant gains of 3.30% and 2.8% respectively, as national security expenditures across Europe continue to provide long-term revenue visibility. Additionally, STMicroelectronics surged over 4.4% , buoyed by the ongoing global expansion in AI infrastructure and semiconductor demand, which analysts estimate contributed significantly to European growth over the past year. These sectors are effectively counterbalancing more sluggish performance in consumer-facing industries.

Luxury Sector and Consumer Sentiment

While industries thrived, the luxury sector—a critical pillar of the French economy—presented a more complex narrative. Giants like LVMH and Hermès saw modest weekly gains of 2.0% and 1.3% respectively, as investors weighed a projected 5% organic sales growth for 2026 against the backdrop of a two-year slump. The market is increasingly optimistic that a stabilizing Chinese consumer market and creative renewals within these fashion houses will drive a double-digit earnings recovery later this year. However, the sector remains sensitive to currency fluctuations and potential trade-war tariff pressures, which have historically blunted revenue growth in foreign markets.

Economic Outlook and Macro Indicators

As we look deeper into the quarter, the macroeconomic projections for the Eurozone suggest a steady recovery, with GDP growth estimated to average 1.2% for 2026. The European Central Bank (ECB) appears to have concluded its rate-cutting cycle, maintaining the deposit rate at 2% , which provides a stable environment for corporate investment. While manufacturing data recently dipped into contraction territory, the services sector remains expansionary, and the “fiscal reawakening” in neighboring Germany is expected to have positive regional spillover effects for French exporters.

The outlook for the CAC 40 remains favorable, with earnings growth across the Eurozone forecasted to exceed 13% this year. Investors should remain vigilant regarding manufacturing PMI readings and inflation trends, which are currently hovering near the 2% target but remain susceptible to energy price shocks. The primary risks to monitor include a potential downshift in US consumption and any escalation in global trade protectionism. However, with robust private-sector balance sheets and the continued integration of AI technology, the French market is well-positioned to navigate these challenges and potentially reach new record highs in the coming months.