Will 2023 be the year of the return of the IBEX 35? Stock market analysis and investment scenarios

The performance of the IBEX 35 since October 2022 has generated renewed interest among European investors. This index, representative of the Spanish stock market, has gained 20.56% in that period, significantly outperforming its main global competitors. The S&P 500 grew just 11.53%, while the NASDAQ 100 advanced a modest 5.20%. Only the Dow Jones Industrial Average is close with a growth of 19.42%.

Macroeconomic fundamentals shaping the forecast for 2023

The outlook for the Spanish stock market depends on three key variables that will determine whether this rally sustains or reverses.

Inflation and monetary policy: the epicenter of the decision

The behavior of inflation in the Eurozone will be critical. If prices remain high, the European Central Bank will need to maintain its trajectory of raising interest rates, which would negatively pressure the valuations of companies in the IBEX 35. Conversely, a sustained moderation of inflation would allow the ECB to pause or cut rates, creating a more favorable scenario for Spanish equities.

The difference in the speed of monetary adjustment between the United States and Europe also matters. More aggressive hikes by the Fed compared to the ECB would attract fund rotations into European assets, benefiting the Spanish index.

Spanish economic dynamism: the market thermometer

Spain’s GDP grew 4.40% year-on-year in the third quarter of 2022, although it slowed to just 0.10% quarter-on-quarter. This slowdown is a warning sign. Any further deterioration in economic activity will compress corporate earnings per share, which would push the stock market forecast for 2023 downward.

Corporate earnings: what truly moves the market

Earnings per share of companies are the main engine behind any sustained stock movement. The consensus among analysts will be the reference: if profits exceed expectations, the IBEX could accelerate its rise; if below, the index would face significant corrections.

The five stocks that control the destiny of the IBEX 35

These five companies account for more than 51% of the index’s market capitalization, so their behavior is practically synonymous with the overall movement:

Iberdrola (IBE) - 15.84% of the index. Renewable electricity generator also operating in distribution, gas marketing, and green hydrogen projects. Trades at €10.90 after rising 13.75% since October.

Banco Santander (SAN) - 10.63% of the index. Global provider of retail and corporate financial services. Trades at €3.1365 and has gained 30.82%, becoming one of the biggest drivers of the recent rally.

Inditex (ITX) - 10.57% of the index. Global leader in textile retail with brands like Zara and Pull & Bear. Trades at €27.49 with a 29.18% increase.

Banco Bilbao Vizcaya Argentaria (BBVA) - 7.56% of the index. Financial entity with presence in emerging markets. Trades at €6.362 with the highest percentage increase: 37.69%.

CaixaBank (CABK) - 6.64% of the index. Bank specializing in retail banking and asset management. Trades at €3.91 with an 18.09% increase.

The financial sector has contributed disproportionately to the upward movement, suggesting that any change in the interest rate cycle would directly impact these stocks and, therefore, the entire index.

Technical scenarios for the stock market in 2023

From a technical analysis perspective, the IBEX 35 is trading at €8,881.70 but remains within a downward channel that has been in place since 2015. To confirm a long-term trend change, two conditions are required: a clear bullish breakout above the primary downward trendline and, more importantly, a sustained close above this level.

The RSI indicator shows an upward behavior from the oversold zone of 2020, currently at 55.77, above its 14-month average of (48.71).

Analysts have identified four key support and resistance levels: €11,184.40; €9,310.80; €7,579.80; and €5,905.30.

Base scenario: The IBEX 35 moves between €10,247.60 (resistance) and the primary downward trendline. This implies exiting the downward channel during 2023. The RSI would stay in the middle zone without reaching overbought extremes.

Optimistic scenario: The index reaches at least €11,184.40. This requires the RSI to penetrate the overbought zone and consolidate there. This scenario aligns with firms like Renta 4, which projects the IBEX at 10,961 points, implying a potential upside of 32% from current levels.

Pessimistic scenario: The IBEX remains within the downward channel, with potential declines toward €7,579.80 (very pessimistic) or even €5,905.30 (catastrophic). The RSI would fall into the oversold zone and consolidate there.

Bankinter, which is part of the IBEX 35, estimates a revaluation potential of 12%, projecting the index at 9,093 points, just 2.4% above the current level.

Sectors and trends that will define 2023

The IBEX 35 is mainly distributed between the financial sector (28.03%) and oil-energy (27.23%). The behavior of these two sectors will be decisive for the stock market forecast in 2023. Interest rates will directly affect banks, while global energy demand and the evolution of Chinese policies will impact the energy sector.

Final considerations for investors

Although the IBEX 35 has lagged behind American indices for years, 2023 could represent a turning point. The combination of attractive valuations, higher yields than global peers, and macroeconomic recovery potential presents opportunities for medium-term investors.

However, the realization of any scenario will depend on factors beyond the Spanish market: the speed of inflation control in Europe, the differential in monetary policies between the ECB and the Fed, and global economic stability. Monitoring the quarterly performance of the five main stocks will be the most reliable thermometer to anticipate which stock market forecast will materialize.