December 5, 2018

Late Rally Helps Stocks Rebound in November

Equity markets rebounded in November from heavy losses a month earlier, led by emerging-market and US indices. European stocks dropped.

The STOXX® Global 1800 Index rose 1.1% in dollar termsin the month after a 7.4% drop in October. The global benchmark is now 8% below its January high and down 1.6% for 2018. 

The STOXX® USA 900 Index gained 2% after losing 7.1% in October. US stocks jumped by the most since March on Nov. 28 after Federal Reserve Chairman Jerome Powell said short-term interest rates in the US are currently ‘just below’ what’s estimated to be a neutral rate – the level where borrowing costs neither hinder nor stimulate growth. The comments boosted expectations the central bank may end its series of interest-rate hikes sooner than previously thought. 

The US economy reported on Nov. 2 that it added 250,000 jobs in October, beating economists’ estimates.Separately, the US midterm elections resulted in the Democrats taking a majority in the House of Representatives and the Republicans boosting their control of the Senate.

The STOXX® Asia/Pacific 600 Index rose 1.4% in the month, in dollars.

Last-minute gains

In the absence of any further deterioration in the outlook for global trade and with bond yields falling slightly, investors dipped back into equities after markets sold off by the most in six years in October. Still, November was far from plain sailing: a 3.1% advance for the STOXX Global 1800 Index in the first week was quickly erased, and the index didn’t claw back into positive territory until the last three sessions of the month. 

The pan-European STOXX® Europe 600 Index and the Eurozone’s EURO STOXX 50® Index, however, continued to struggle as data releases pointed to a further economic slowdown in the region.The indices dropped 1% and 0.7% in euros, respectively, and remain headed for the first annual loss since 2011. 

Commodities markets showed one of the clearest signs of investors’ lingering concern about a global economic slowdown. Brent crude price in London tumbled 22% to $51 a barrel over November. The Thomson Reuters CRB Commodity Total Return Index, which tracks metals prices, dropped 4.7%. 

Mining, oil stocks drop

The STOXX® Global 1800 Travel & Leisure Index had the best performance among 19 supersectors in the STOXX Global 1800 Index over the month, rising 5.8%. It was followed by the STOXX® Global 1800 Health Care Index, which added 5.1%, and the STOXX® Global 1800 Real Estate Index, which gained 4.6%.

At the other end, the STOXX® Global 1800 Basic Resources Index dropped 4.3% and the STOXX® Global 1800 Oil & Gas Index fell 3.2%.   

Thirteen of the 25 developed markets tracked by STOXX rose in the month, led by the STOXX® Hong Kong Total Market Index’s 6.7% advance.4  The STOXX® Luxembourg Total Market Index posted the worst monthly performance in the group for a second consecutive month. The measure dropped 6.5% in November, dragged lower by steelmaker ArcelorMittal SA.

November’s rebound was stronger for developing markets, with the STOXX® Emerging Markets 1500 Index jumping 4.1%, its best monthly performance since January. Thirteen of 21 developing markets tracked by STOXX rose in the month,led by measures for Hungary, Turkey and Indonesia. 

Risk management strategies

Minimum variance strategies outperformed across all regions, a sign that investors who returned to the market favored those companies with the smallest potential drawdowns. The STOXX® Global 1800 Minimum Variance Index rose 4% and its unconstrained version advanced 3.4%. 

It was alsoa positive month for STOXX’s revenue-based thematic indices, with six out of all eight beating the STOXX Global 1800 Index.The iSTOXX® FactSet Breakthrough Healthcare Index gained the most in the month, after leading October’s retreat, adding 4.7%. The iSTOXX® FactSet Automation & Robotics Index was November’s second-best performer, climbing 3.9% in dollars.

STOXX’s AI-driven thematic indices also did well, with all three beating the STOXX Global 1800 benchmark. The iSTOXX® Yewno Developed Markets Blockchain Index was the best-performing gauge in the group, rising 2.2%. The move took this year’s gain for the index to 5.6% and the advance in the past year to 9.1%.

The other two gauges, the STOXX® AI Global Artificial Intelligence Index and the STOXX® AI Global Artificial Intelligence ADTV5 Index, rose 1.5% and 1.7%, respectively.

Finally, many dividend-based strategies outperformed in the month as bond yields dropped. Yields on 10-year US Treasuries fell to 3% at the end of November from 3.13% at the start of the month. The STOXX® Global Select Dividend 100 Index rose 2.1% in dollars and the STOXX® Global Select 100 EUR Index added 1.6% in euros. 

Featured indices

Total returns after taxes.
CNN, ‘The US economy added better-than-expected 250,000 jobs in October,’ Nov. 2, 2018.
IHS Markit, IHS Markit Flash Eurozone PMI release, Nov. 23, 2018.
4,5 Country returns are in local currencies.