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Blog Posts — August 5, 2019

Rate Cut Expectations Help Stocks in July

Global stocks extended gains during July as investors anticipated an interest-rate cut in the US that came on the last day of the month and the European Central Bank indicated that it is ready to increase monetary stimulus.

The STOXX® Global 1800 Index had a total return of 0.4% in dollar terms1 during the month, after jumping 6.6% in June. The index is now up 18% since the start of 2019. Before dividends, the global benchmark reached its highest point for the month on Jul. 24, when it closed 1.7% below its record of January 2018.

The STOXX® North America 600 Index was the key driver of gains in July among the three major regions, adding 1.4% in dollars. The pan-European STOXX® Europe 600 Index rose only 0.3% in euros and the STOXX® Asia/Pacific 600 Index, meanwhile, fell 0.1% in dollars.

The Eurozone’s EURO STOXX 50® Index increased 0.2%. The STOXX® USA 900 Index gained 1.5% to a new high. The STOXX® Japan 600 Index climbed 0.2%, in dollars.

Largest central banks in easing mode

On Jul. 31, the Federal Reserve (Fed) lowered its key interest rate for the first time since 2008 to protect the American economy from an overseas slowdown and from uncertainty around international trade. A week earlier, ECB President Mario Draghi indicated that the bank is ready to lower borrowing costs in coming months amid worsening economic data in the Eurozone.

Thirteen of the 25 developed markets tracked by STOXX rose during the month when measured in euros. In dollar terms, 18 of them declined. The STOXX® Developed Markets 2400 Index gained 2.8% in euros and 0.5% in dollar terms, as the common currency retreated 2.2% against the greenback during the month.

Thirteen of 21 emerging-markets national indices declined when measured in dollars. The STOXX® Emerging Markets 1500 Index, however, rose 0.4%, helped by gains in the Turkish, Brazilian and Russian markets.

Basic resources, chemicals lead gains

Industry performance was evenly split during the month. Ten of the 19 supersectors in the STOXX Global 1800 Index retreated, led by a 3.7% drop in the STOXX® Global 1800 Basic Resources Index, the previous month’s winner. The STOXX® Global 1800 Oil & Gas Index was the month’s second-worst performer, shedding 2.7%.

At the other end, the STOXX® Global 1800 Technology Index jumped 3.5%, paced by Apple Inc. after the iPhone maker reported profits that topped analysts’ estimates. The STOXX® Global 1800 Financial Services Index followed in second place after rising 2.6%.

Pure factor exposure detracts again

Exposure to pure factor premia continued to yield negative returns. For a second month in a row, all seven iSTOXX® Europe Factor Market Neutral Indices, which hold a short position in futures on the STOXX Europe 600 to help investors neutralize systematic risk, fell on a net-return basis.

The iSTOXX® Europe Size Factor Market Neutral Index retreated 2.3%, its sixth straight monthly loss. At the other end, the iSTOXX® Europe Low Risk Factor Market Neutral Index dropped the least.

The iSTOXX Europe Factor Market Neutral Indices are designed to offer exposure to factor investing in isolation of the market risk. All indices have declined during 2019.

Most premia indices outperform

Factor returns did better when measured by the EURO STOXX® Multi Premia® and Single Premium Indices, which integrate the academic-research-based Multi Premia methodology developed by STOXX’s partner Finreon. Unlike the iSTOXX Europe Factor Market Neutral Indices, the EURO STOXX Multi Premia and Single Premium Indices are exposed to the market’s systematic risk.

The EURO STOXX® Momentum Premium Index rose 1.4%, leading gains among seven indices tracking distinctive sources of equity risk and returns. Their benchmark, the EURO STOXX® Index, gained 0.2% in euros during July. Only the EURO STOXX® Reversal Premium Index and the EURO STOXX® Value Premium Index underperformed the benchmark, with the remaining six outperforming.

Thematic drivers underpin indices

Fourteen of the 20 STOXX® Thematic Indices outperformed the STOXX Global 1800 Index during July. The STOXX® Global Artificial Intelligence Index posted the group’s best performance, rising 5.3%. The index tracks companies that derive the highest ratio of sales from AI-related technologies.

The STOXX Thematic Indices seek exposure to the economic upside of disruptive global megatrends and follow two approaches: revenue-based and artificial-intelligence-driven. Fourteen of the 20 gauges are ahead of the benchmark so far in 2019, led by a 38% advance in the STOXX® Global Sharing Economy Index.

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All results are total returns before taxes.