IBEX 35 Poised for Moderate Gains, Analysts Predict

Outlook: IBEX 35 index is assigned short-term Ba3 & long-term B3 estimated rating.
AUC Score : What is AUC Score?
Short-term Tactic¹ :
Dominant Strategy :
Time series to forecast n: for Weeks²
ML Model Testing : Modular Neural Network (CNN Layer)
Hypothesis Testing : Pearson Correlation
Surveillance : Major exchange and OTC

¹Short-term revised.

²Time series is updated based on short-term trends.

Key Points

The IBEX 35 index is anticipated to exhibit a period of consolidation, potentially hovering within a defined range reflecting the ongoing uncertainty surrounding global economic growth and the effects of monetary policy adjustments. This stagnation may be punctuated by brief periods of volatility, driven by earnings reports from key constituent companies and shifts in investor sentiment influenced by geopolitical events. The primary risk associated with this forecast is the potential for a sharper-than-expected economic slowdown, which could trigger a more substantial downward correction, disproportionately affecting sectors heavily reliant on consumer spending. Conversely, an unexpected resurgence in economic activity or a significant easing of inflationary pressures could propel the index to outperform expectations, although the likelihood of such a scenario remains relatively low. Moreover, any unforeseen disruptions in the financial sector or unexpected policy changes by major central banks pose significant threats to the stability of the market.

About IBEX 35 Index

The IBEX 35 is the benchmark stock market index of the Bolsa de Madrid, the principal stock exchange in Spain. It serves as a crucial indicator of the performance of the Spanish economy, reflecting the overall sentiment and health of the country's leading publicly traded companies. The index's constituents represent a diverse range of sectors, including banking, utilities, telecommunications, and energy, making it a barometer for various facets of the Spanish market. Its composition is reviewed periodically, typically on a semi-annual basis, to ensure that the most representative and liquid companies are included.

The IBEX 35 is calculated using a market capitalization-weighted method, meaning that companies with higher market capitalization have a greater influence on the index's value. This methodology allows for a comprehensive understanding of the overall market trends and provides a benchmark for investors to gauge the performance of their portfolios relative to the Spanish market. Due to its significance, the IBEX 35 is widely monitored by investors, analysts, and policymakers, both domestically and internationally, for its implications on economic stability and investment opportunities within Spain.

IBEX 35 Index Forecast Model

Our team of data scientists and economists has developed a machine learning model to forecast the performance of the IBEX 35 index. The model incorporates a comprehensive set of features categorized into three primary groups: **macroeconomic indicators**, market-specific data, and technical indicators. The macroeconomic indicators considered include GDP growth rates for Spain and the Eurozone, inflation figures (CPI), interest rates set by the European Central Bank (ECB), unemployment rates, and consumer confidence indices. Market-specific data incorporates trading volume, volatility indices (e.g., VIX), and data on the composition of the IBEX 35, including sector weights and the performance of individual companies. Furthermore, we leverage technical indicators such as moving averages (SMA, EMA), Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), and Fibonacci retracement levels to capture short-term trends and market sentiment. This multifaceted approach allows us to capture both fundamental and technical drivers of the index's fluctuations.

The model utilizes a **hybrid approach** combining several machine learning algorithms. We employ a Random Forest regressor to capture non-linear relationships between the features and the index's future values. Additionally, we incorporate a Long Short-Term Memory (LSTM) recurrent neural network to leverage the time-series nature of the data and capture sequential dependencies. The input data is preprocessed through techniques such as normalization and feature scaling to ensure all variables have a similar range and improve the model's performance. The model is trained on historical data spanning several years, with a portion of the dataset reserved for validation and testing to evaluate its predictive accuracy. Model performance is assessed using several metrics, including Mean Squared Error (MSE), Root Mean Squared Error (RMSE), and Mean Absolute Error (MAE), to gauge its ability to predict future index movements. **Regular model retraining and recalibration** are planned to maintain accuracy in dynamic market conditions.

The output of the model is a forecast of the IBEX 35 index's expected value over a specified timeframe. This forecast is accompanied by confidence intervals to reflect the uncertainty inherent in market prediction. The model's output can be used by financial institutions and investors to support investment decisions. The forecast's accuracy will be continuously monitored and improved through ongoing research, refinement of features, and optimization of algorithms. **Risk management** is crucial. It is understood that the model's predictions are probabilistic and should be used in conjunction with other sources of information and expert judgment. The model's predictions are not financial advice but rather a tool to aid in informed decision-making within the scope of broader financial analysis and risk management strategies.

ML Model Testing

F(Pearson Correlation)^6,7= $\begin{array}{cccc}{p}_{\mathrm{a}1}& p_{\mathrm{a}2}& \dots & p_{1n}\\ & ⋮\\ p_{j1}& p_{j2}& \dots & p_{jn}\\ & ⋮\\ p_{k1}& p_{k2}& \dots & p_{kn}\\ & ⋮\\ p_{n1}& p_{n2}& \dots & p_{nn}\end{array}$ X R(Modular Neural Network (CNN Layer))^3,4,5 X S(n):→ 4 Weeks $\overrightarrow{R}=\left(r_1,r_2,r_3\right)$

n:Time series to forecast

p:Price signals of IBEX 35 index

j:Nash equilibria (Neural Network)

k:Dominated move of IBEX 35 index holders

a:Best response for IBEX 35 target price

 

For further technical information as per how our model work we invite you to visit the article below: 

How do KappaSignal algorithms actually work?

IBEX 35 Index Forecast Strategic Interaction Table

Strategic Interaction Table Legend:

X axis: *Likelihood% (The higher the percentage value, the more likely the event will occur.)

Y axis: *Potential Impact% (The higher the percentage value, the more likely the price will deviate.)

Z axis (Grey to Black): *Technical Analysis%

IBEX 35 Index: Financial Outlook and Forecast

The outlook for the IBEX 35, Spain's primary stock market index, presents a complex picture influenced by both domestic and international factors. Spain's economic growth, although exhibiting resilience in recent quarters, faces headwinds. Factors such as persistent inflation, rising interest rates, and the potential for a slowdown in key European economies, including Germany, could negatively impact corporate earnings and investor sentiment. Furthermore, the dependence of several IBEX 35 constituents on sectors particularly vulnerable to economic cycles, such as banking and construction, adds to the uncertainty. However, Spain also benefits from positive aspects. The tourism sector, a crucial pillar of the Spanish economy, continues to perform strongly, offering a buffer against potential downturns. Government initiatives aimed at fostering economic activity and attracting foreign investment also provide a degree of support. The evolving geopolitical landscape, including developments in the war in Ukraine and its broader implications for energy prices and supply chains, will play a significant role in shaping the macroeconomic environment and influencing the index's performance.

Corporate earnings will be a key determinant of the IBEX 35's trajectory. Companies' ability to navigate inflationary pressures, manage rising input costs, and maintain profitability will be crucial. Sectors such as renewable energy, which are experiencing significant growth due to government incentives and the global energy transition, could provide positive contributions to the index. In addition, any positive outcomes from increased infrastructure spending could benefit specific companies. The financial sector, a significant component of the IBEX 35, will be closely watched. The performance of banks and financial institutions will be impacted by interest rate trends, lending volumes, and the overall economic climate. Furthermore, any potential regulatory changes impacting the financial industry will be scrutinized. Strong balance sheets, efficient cost management, and the ability to adapt to evolving market conditions will be important factors for companies seeking to generate investor confidence and sustain their valuations.

International events will undoubtedly have a substantial impact on the IBEX 35's performance. Economic conditions in the Eurozone, the United States, and emerging markets are particularly relevant given Spain's economic integration with these regions. Trade relations, currency fluctuations, and changes in global demand will all contribute to the index's overall volatility. The direction of the European Central Bank's monetary policy will have a direct influence on interest rates and could affect borrowing costs for companies and consumers alike, influencing consumer spending and business investment. Moreover, any unexpected geopolitical events, such as shifts in international trade agreements or escalations in regional conflicts, have the potential to disrupt global markets and impact investor sentiment towards riskier assets. The relative valuation of the IBEX 35 in comparison to other major European indices will also be an important consideration for investors seeking investment opportunities and portfolio diversification.

Overall, the forecast for the IBEX 35 is cautiously optimistic. While several headwinds present challenges, there are also some compelling reasons for cautious optimism. The resilience of the Spanish economy, coupled with opportunities in sectors like renewable energy and tourism, provides support for a moderately positive outlook. The risks to this outlook primarily include a sharper-than-expected economic slowdown in Europe, rising inflation, and potential geopolitical instability. These could weigh down corporate earnings, dampen investor confidence, and create increased volatility in the index. Conversely, stronger-than-anticipated economic growth, favorable corporate earnings results, and positive developments in the geopolitical landscape could bolster the IBEX 35's performance. Therefore, the index's future will hinge on a delicate balance of domestic strengths and external challenges.

Rating	Short-Term	Long-Term Senior
Outlook	Ba3	B3
Income Statement	C	Baa2
Balance Sheet	B2	C
Leverage Ratios	Baa2	B3
Cash Flow	Ba2	C
Rates of Return and Profitability	Baa2	Caa2

*An aggregate rating for an index summarizes the overall sentiment towards the companies it includes. This rating is calculated by considering individual ratings assigned to each stock within the index. By taking an average of these ratings, weighted by each stock's importance in the index, a single score is generated. This aggregate rating offers a simplified view of how the index's performance is generally perceived.
How does neural network examine financial reports and understand financial state of the company?

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