What does CAC 40 mean? Definition, operation and impact

Why is CAC 40 important to understand the French stock market?

The CAC 40 occupies a privileged place in the French equity market To tell the truth, it is often considered the main barometer of the Paris Stock Exchange, much like the Dow Jones in the United States. It serves as a reference for financial products such as ETF (trackers), term (future) contracts and other derivative instruments.

A reflection of the French economy

Although it concentrates only 40 companies, the CAC 40 includes a variety of activity sectors : luxury, automobile, construction, telecommunications, bank, insurance, energy, etc. Through this diversified sample, it gives a representative overview of the country's overall stock market trend Strategic decisions, financial results and variations in the prices of these large companies directly influence the perception of national economic health.

Weighting by floating market capitalization

Unlike a simple calculation of averages, the CAC 40 relies on a sophisticated weighting . Each company occupies a place proportional to its market capitalization , adjusted according to its “floating”. The floating designates the share of shares actually available for purchase on the market (that is to say excluding actions held by the founders, the state or any long-term investor). Companies whose floating is significant and the volume of exchange has high more in the index.

Limit of 15 % maximum weight

In order to preserve a certain diversity and to avoid the domination of a single group, a specific rule caps the weighting of only one value at 15 %. This cap allows influence to be balanced, even if certain capitalizations like LVMH or Totalnergies could otherwise represent a much more important part.

What does CAC 40 mean? Birth and history of the index

The CAC 40 was born on June 15, 1988, but its reference date was set for December 31, 1987. At that time, it was awarded a base of 1,000 points. This reference value is a benchmark to measure variations over time. In other words, if the index reaches 5,000 points, this means that the basket of actions which composes it “is worth” 5 times more than on the day of its creation in nominal terms . However, this progression does not take into account inflation, which can reduce real gain in purchasing power.

The launch of the CAC 40 is the fruit of reforms of the French stock market system, as well as a desire to modernize the quotation thanks to computerization (continuous assisted rating). Before this digitization, the orders had been placed mainly orally, via exchange agents. The emergence of the CAC 40 thus facilitated the transparency of transactions, while offering operators the possibility of following almost in real time the fluctuations of the titles.

The main stages striking

• 1987-1988 : The beginnings. The index is defined at 1,000 points and officially comes into force.
• Beginning of the 2000s : the explosion of the “Internet bubble” made CAC 40 peak above 6,900 points (in September 2000), before a drastic fall in the years that followed.
• 2008 : The financial crisis of subprimes leads to a general collapse of the markets, the CAC 40 loses more than 40 % in one year.
• 2020 : Beginning of the COVID-19 pandemic, which again shakes all world stock markets, including the Paris Stock Exchange.

If we compare his journey to other global indices such as the S&P 500 or the NASDAQ, the CAC 40 generally follows the international trend, slightly underperforming the American market, it remains focused on the economic health of France and on the international expansion of its industrial and commercial flagships.

What does CAC 40 mean? What is “continuous assured rating”?

The term “CAC” literally means “continuous assisted rating”. This indicates that the course is recalculated very regularly, every 15 seconds, during the opening hours of the Paris Stock Exchange (usually 9:00 a.m. to 5.30 p.m.). This mechanism has transformed the way of negotiating actions by allowing great responsiveness to purchase and sale orders.

Role of the scientific advice of clues

The composition of the index is not frozen. A specialized council, called the scientific advice of indices (CSI), meets at least four times a year to determine which companies meet the eligibility criteria: importance of the floating, exchanged volumes, sectoral representativeness, etc. Thus, values ​​can enter or exit, so that the list of 40 companies remains in line with the reality of the market. To validate detailed information on its composition, you can consult the dedicated page on the official Euronext website .

Major selection criteria

• Floating capitalization : only the shares actually available on the market are taken into account.
• Trade volumes : the more frequently an action is negotiated, the more likely it is to integrate or stay in the index.
• Sectoral representativeness : the CSI takes care to maintain a certain diversity (banks, luxury, industry, telecom, etc.).

What does CAC 40 mean?  Technical details on the calculation of the index

The level of the CAC 40 index is calculated by carrying out the sum of the floating stock market capitalizations of each company composing the index, divided by a divider (called “adjustment factor”). This divider was initially established in the creation of the index, then adjusted over the years to take into account events such as:

• splits (nominal division to increase the number of securities in circulation) .
• Mergers and acquisitions (which make certain companies disappear or merge).
• Massive stock exchange .

Each title therefore weighs according to the total value of its floating in euros. When a company sees its capitalization increase (for example, via an increase in the course or the issue of new titles), its weight in the index also increases, within the limit of 15 % mentioned. Conversely, if it knows a lasting fall, its share decreases automatically.

CAC 40 with or without reinvestis dividends

Generally, we consult the version of the CAC 40 “naked”, that is to say excluding reinvested dividends . This means that the sums distributed to shareholders in the form of dividends are not added to the progression of the index. However, to measure real performance, it is also possible to follow the 40 gr (large return, reinvested dividends) or CAC 40 NR (net return, reinvested dividends). These indicators better reflect the evolution of the total value that a shareholder would have perceived if he had reinvested his dividends in the same societies.

What does CAC 40 mean?  Current composition: What types of businesses do we find?

There is an updated list of companies constituting the CAC 40. The names are well known: LVMH, L'Oréal, BNP Paribas, Airbus, Sanofi, Danone, Renault, Axa, Michelin, or Totalenergies. Of course, some have evolved (mergers, name changes, etc.). All these companies are distinguished by their significant weight in the French economy and capitalization , but also by the international scope of their activities.

Examples of sectors represented

• The luxury sector : LVMH, Hermès, Kering
• Bank and insurance : BNP Paribas, Société Générale, AXA
• The automotive industry : Stellantis, Renault
• Aeronautics : Airbus, Safran
• Pharmacy : Sanofi
• Community services : Engie, Veolia

The representativeness is never perfectly fixed. The board of experts takes care to update the composition regularly in order to stay as close as possible to the reality of the French market. If a company loses importance or leaving stock market radars , it can be replaced by another more dynamic.

Fluctuating stock market

Each company experiences periods of rapid growth or hindsight. The CAC 40, being a weighted average of these fluctuations, can undergo significant variations depending on the quarterly results, an unexpected merger or geopolitical events. This is why the level of the index can climb above 7,000 points in the best periods, or tumble under 3,000 points during major crises, as in 2009.

What does CAC 40 mean?  What does an increase or a drop in the index mean?

When the index rises, it is generally considered that there is a climate of confidence on the market. Investors believe that companies will generate higher profits or that the economic situation is positive . Conversely, a decrease suggests prudence, even the fear of a crisis or a recession .

Interpret the evolution of the index

• A increase can translate the optimism or the enthusiasm aroused by a new technology, a promising sector or a government recovery plan.
• A decrease can result from geopolitical events (international conflicts), interest rate increases by central banks or publications of results of companies lower than expectations.

In all cases, there remains a synthetic indicator, and its volatility depends on multiple factors, both local and international (trade tensions, variations in single currency, political decisions, etc.).

International influences

Even if it is focused on the French economy , the CAC 40 reacts immediately to the world news. For example, an oil shock particularly affects energy companies, while a global financial crisis spares no value. Companies making up the index often generate most of their turnover abroad, in fact strengthening the dependence on CAC 40 to global economic fluctuations.

What does CAC 40 mean?  Investment strategy

Investing in the CAC 40 is one of the most common approaches to expose themselves to the Paris Stock Exchange . Several techniques or investment vehicles are possible:

• ETF (trackers) : they reply the performance of the index. By buying an ETF CAC 40, you have a “basket” of shares corresponding to the composition of the index.
• The term (future) contracts : they allow you to take a position on the future value of the index, with a potentially high lever effect.
• The options : via calls (purchase options) and puts (sales options), you can bet on the rise or the drop in the index.
• The purchase of individual actions : to expose yourself to the CAC 40 can also go through a targeted choice of the titles that compose it.

For an investor looking for a “wide” and diversified exhibition, an ETF on the CAC 40 can constitute a simple entry point. However, it is crucial to study the economic situation and keep an eye on the monetary policy of the European Central Bank, as well as on major economic indicators (inflation rate, GDP growth, etc.).

What does CAC 40 mean?  A global economy

The importance of CAC 40 goes beyond French borders. International investors often use it to assess the business climate in France and Europe. In addition, many CAC 40 companies generate a considerable part of their sales abroad, reflecting the globalization of economic activity.

Comparison with other indices

• Dow Jones : In the United States, it includes 30 values ​​among the largest capitalizations. Its calculation method is different, because it is based on the unit price of shares rather than on global capitalization.
• S&P 500 : a wider American index that includes 500 companies. Its calculation method is closer to the CAC 40 (weighting by capitalization, adjusted to the floating).
• Dax : In Germany, it is calculated reinvested dividends and has been made up of 40 companies since its enlargement (against 30 before).

These clues often evolve in a correlated manner, insofar as global finance is increasingly interconnected. A banking crisis in the United States can have an almost immediate impact on European prices and vice versa.

What does CAC 40 mean?  Examples of striking historical variations

To illustrate the extent of fluctuations, here are some key episodes:

• Internet bubble (2000) : The index climbs up to more than 6,900 points, carried by the euphoria on new technologies, before falling below 3,000 points in 2003.
• Financial crisis (2008) : CAC 40 dives in a dazzling way, losing more than 40 % in a few months, repercussions with banking bankruptcies and panic on the markets.
• Crisis of the euro (2011-2012) : sovereign debts and fears linked to the financial solidity of certain member countries (Greece, Portugal, etc.) push the index downward.
• Pandemic of COVID-19 (2020) : Sluttal fall followed by a rapid rise, in a climate of very accommodating uncertainties and monetary policies.

Despite these tremors, the CAC 40 has shown a resilience capacity, often recovering its preview levels in the medium or long term.

Recent evolution

In recent years, the index has returned to high levels, sometimes exceeding 7,000 points thanks to the dynamism of the luxury sector and post-pandemic recovery.

Behind the CAC 40: the role of the major institutional actors

To explain the fluctuations of the CAC 40, it is useful to know who holds the shares of these giants of the Paris Stock Exchange. In addition to small holders, large institutional investors (pension funds, insurance companies, investment banks) take massive positions in these companies.

Influence on market liquidity

• The greater the floating, the easier the value , that is to say easily negotiable.
• Institutional investors can inject or remove capital quickly, promoting or destabilizing the price.
• Affairs buybacks and dividend policies directly influence the market attractiveness of a company.

Thus, beyond the simple results publications, the investment strategy adopted by these major institutions (for example, by emphasizing the increase in dividends) can accentuate volatility or, on the contrary, stabilize the title.

How to follow the CAC 40 in real time?

Several options are accessible to consult the evolution of the CAC 40:

• Specialized stock markets : many financial portals, including Euronext , give the course live.
• Trading platforms : Online brokers offer real -time follow -up, often accompanied by graphs, technical analysis tools and indicators.
• Continuous information flow : via television (economic channels), radio or financial news sites, we can follow intra -day evolution.

The final course, called “fence course”, is generally attached to 5:35 pm, after a “fixing” which identifies the equilibrium price allowing the largest volume of transactions possible.

Getting started: what steps to invest in the CAC 40?

The CAC 40 offers an interesting point of entry thanks to its large diversification within the French economy. Here are some key principles if you want to start:

1. Choose a securities account or a PEA (equity savings plan). The PEA is interesting on the tax level if you keep your titles for more than 5 years.
2. Study the ETF CAC 40 because they reply the performance of the index at a lower cost.
3. diversification strategy to limit the risks linked to a single market.
4. Inquire regularly via reliable sources (annual reports, economic news) to readjust your investment strategy .

Of course, each approach depends on your risk profile, your investment horizon and your heritage goals.

Example of a approach to acquire an ETF CAC 40

• Open a securities account with an online broker offering competitive costs.
• Find an ETF eligible for your investment envelope (PEA or securities account) which follows CAC 40.
• Place a purchase order (limited courses, for example) to acquire the shares of the ETF.
• Regularly monitor your position, while making sure to keep a Middle Long Term perspective in order to avoid making hasty decisions in the event of upheavals.

The role of decentralized finance (DeFi) in the stock market ecosystem

Today, the rise of decentralized finance ( DeFi ) offers a new way of managing and exchanging assets, based on blockchain technology. Although CAC 40 remains associated with traditional finance, institutions are increasingly invested in DeFi to improve the speed of transactions, reduce brokerage costs and expose yourself to a very volatile market, potentially very lucrative and more easily manipulable for an institution with high funds.