The Spanish stock market surpasses the historical highs of 2007

BarcelonaThe Ibex 35, the benchmark index for the Spanish stock market, surpassed its all-time highs recorded in November 2007 on Monday, as well as the symbolic barrier of 16,000 points. The index, which groups the 35 largest listed companies in the Spanish state, is experiencing another day of gains, as are most other global markets, driven upward by the recent trade rapprochement between the United States and China.

The highest level recorded by the Spanish index to date was 15,945.70 points, at which the market closed on November 8, 2007, although it reached 16,040.40 points at one point on that day. This Monday, the Ibex 35 closed at 16,000.20 points, up 0.87%. The Spanish stock market includes the Barcelona, ​​Madrid, Valencia, and Bilbao markets. However, although it has now reached its peak, the Ibex 35 has recovered to its pre-crisis levels in 2015 if profitability is taken into account, that is, if dividend payments are included, says Xavier Brun, academic co-director of the master's degree in finance and banking at the UPF Barcelona School of Management and head of the program.

Since January 1, the Ibex has grown by 37.7%, making it the stock market index with the greatest increase so far this year in Western countries, above Milan and Frankfurt, which have registered increases of 25% and 21%, respectively. In the US, the Nasdaq technology index has grown by 20%; the S&P 500 by 15%; and the New York Dow Jones by nearly 11%.

Strong weight of banks

The reason behind the Ibex's recovery to pre-financial crisis levels is the heavy weight of banks on the Spanish stock market, which means the financial sector's performance has a greater impact than on other European indicators. Specifically, financial institutions represent approximately a third of the index's value.

In this regard, during the years following the crisis, the European Central Bank (ECB) gradually reduced interest rates to 0%. The fact that interest rates were at historic lows limited banks' profits (the higher the rates, the greater the profit margins they could have on the loans they granted). "We had very small margins," Brun recalls. "In this scenario of low interest rates, profits fell," he adds, something that was noticeable in the Ibex 35's share price.

Furthermore, the fact that Spanish banks experienced greater difficulties than those in other countries due to the bursting of the country's real estate bubble and, in addition, had to absorb a large part of the savings banks, was also reflected in bank share prices. The more problems the banks present, the lower the value of the Ibex 35.

With the end of the pandemic in 2021 and, above all, with the energy crisis resulting from the Russian invasion of Ukraine a year later, prices soared and the ECB raised rates again to combat inflation. "Rates have risen and they are here to stay" to higher levels than those that existed between the crisis and the pandemic, Brun indicates. Thus, the banks' results improved and, therefore, their profits and dividends. This improvement in the outlook for the banking sector in recent years has boosted the value of bank shares and, consequently, the Ibex 35 share price.

Aside from banking, Brun points out that the rise in the Ibex is also driven by other sectors that have performed well in recent years, such as energy companies – led by Iberdrola – and other companies, such as Inditex (the parent company of fashion brands such as Zara and Bershka), which has recently seen Indra double its value in just a few years.

Trade agreements

In the very short term, Monday's rise is largely due to the announcement by US Treasury Secretary Scott Bessent of a framework agreement between Washington and Beijing that will prevent the US government from imposing a new 100% tariff on Chinese products. The US has also signed trade pacts with Thailand, Malaysia, and Cambodia to remove tariffs on most US products entering these three markets, while exports from these countries to the US will have a 19% tariff. With these agreements, the Trump administration reduces the possibility of further escalations in the trade war it is waging internationally, especially against exporting countries in Asia and Europe.

Furthermore, global financial markets are counting on the Federal Reserve to cut interest rates again in the US on Wednesday to facilitate credit and revitalize the US economy, while they also expect the European Central Bank to leave the price of money in the eurozone unchanged on Thursday.