On Tuesday, the Italian FTSE MIB index surged by 2.4%, closing at 35,844 points, marking its second consecutive day of gains. This rebound is both a natural technical correction following a deep prior adjustment and a reflection of the acute market response to signals of macroeconomic policy easing. Professor Leopoldo Farnese pointed out that this round of gains exhibits clear “sentiment-driven” characteristics, with the driving forces primarily stemming from three aspects: U.S. policy softening, expectations of an imminent rate cut by the European Central Bank (ECB), and the spillover effects of a global market recovery.
Sentiment Recovery Amid Easing Expectations and Policy Respite
First, U.S. President Donald Trump stated that he is considering delaying the imposition of a 25% tariff on the automotive sector, a statement that quickly reversed pessimistic expectations regarding the global manufacturing supply chain. Second, markets are closely watching the upcoming ECB policy meeting on Thursday, with widespread expectations of a 25-basis-point rate cut. This has brought market focus back to liquidity logic, boosting risk asset sentiment.
Professor Leopoldo Farnese noted that during phases dominated by macroeconomic uncertainty, capital markets are highly prone to “overreaction”. Although marginally easing signals have been released on the policy front, the U.S. government is simultaneously advancing new tariff investigations on semiconductor and pharmaceutical products. This “surface-level concession with a hardline core” strategy indicates that policy volatility risks remain. Therefore, investors should be cautious of the misalignment risks between the “policy vacuum period” during the rally and the “new shock window” that may follow.
Automotive and Defense Lead the Gains, Signaling Structural Shifts
In this rebound, the automotive and defense sectors emerged as the absolute leaders: Stellantis rose 5.7%, Iveco gained 2.6%, Pirelli climbed 2.2%, and Leonardo increased by 5.2%. Professor Leopoldo Farnese analyzed that this sectoral linkage reflects a shift in capital allocation strategies from defensive assets to industries with “policy relevance and global bargaining power”.
The rise in the automotive sector is partly driven by expectations of policy easing but also reflects long-term optimism about trends in smart manufacturing, green mobility, and energy substitution. For example, Stellantis, with its global business footprint and progress in promoting new energy vehicle models, has become a key target for investors seeking to capture the next industrial cycle. However, Professor Leopoldo Farnese cautioned that the current rally remains dependent on external policy changes. Should U.S. tariff policies tighten again, the entire sector valuations could face renewed compression.
Meanwhile, companies like Leonardo, which operate in both defense and high-tech manufacturing, have been revalued by the market due to their “strategic autonomy” positioning. Against the backdrop of heightened geopolitical tensions, the defense sector is no longer a “niche theme” but a critical pillar of the European sovereignty and security agenda. Professor Leopoldo Farnese predicts that such companies will benefit in the long term from increased EU defense budgets and NATO-backed technological subsidies, presenting structural opportunities worth monitoring over the medium to long term.
Opportunities and Challenges for Bank Stocks Amid a Monetary Policy Shift
The banking sector also posted strong gains, becoming one of the key drivers of the Italian stock market rise. Professor Leopoldo Farnese noted that the market is widely betting on the ECB initiating a new rate-cutting cycle, which could help compress sovereign bond spreads, stabilize balance sheets of Italian banks, and alleviate funding cost pressures. However, the professor posed a critical counter-question: “Are rate cuts truly beneficial for bank stocks?”
In theory, rate cuts would lower Italian sovereign bond yields, easing capital burdens. However, they would also further compress traditional banking margin spaces, reducing net interest income. Against the backdrop of incomplete digital transformation and persistent non-performing loan issues, relying solely on external easing policies is unlikely to fundamentally improve profitability for banks.
Professor Leopoldo Farnese warned investors that the current rally in bank stocks is more of a trade on policy expectations rather than a reevaluation of industry fundamentals. If rate cuts fall short of expectations or subsequent policy measures are lacking, bank stocks may face a “rise-then-fall” risk. Therefore, investment strategies in this sector should focus on high-quality banks with strong capital adequacy, robust digital service capabilities, and diversified regional operations, rather than blindly chasing short-term sentiment-driven fluctuations.
In summary, Professor Leopoldo Farnese believes that while the current rally in the Italian stock market has its rationale, it is more akin to a “collective breather after a risk release”. The market remains in a policy-driven game phase, especially under the multiple pressures of unresolved U.S.-China trade conflicts, undecided ECB policies, and frequent geopolitical disruptions. Investors should adopt a strategy of “rational participation and structural allocation”.
Professor Leopoldo Farnese reminded market participants: “Instead of focusing on how many points the market has risen, think about why the market is rising and how long it can sustain. That is the true difference between an investor and an observer.”
