December’s severe losses were followed by an equally sharp rebound in January of the new year, as investors returned to battered markets encouraged by positive macroeconomic news flow.
The STOXX® Global 1800 Index jumped 7.7% in dollar terms1 during the month, its best monthly gain since October 2015 and its best start to a year since data begins in 1991. The index slumped 7.6% last December, capping its worst annual performance since 2008.
US central bank changes tone
Foremost among positive developments for investors was the Federal Reserve’s change in rhetoric. Following December’s market pullback and amid signs of an economic slowdown in Europe and China, Fed Chairman Jerome Powell said on Jan. 30 that the case for continuing raising interest rates had ‘weakened,’ and added that the central bank would be ‘patient’ in tightening monetary policy going forward.2
As recently as December the Fed had forecast two more hikes in 2019.
There was also positive news on the economic front. The US created a higher-than-expected 312,000 jobs in December, it was reported last month, the latest sign the economy remains on solid footing.
US President Donald Trump said during the month that negotiations with China to reach a new trade pact between the two nations were developing positively, easing concerns about trade disruptions that have weighed on markets.
The STOXX® USA 900 Index jumped 8.5% during January, its strongest monthly advance since October 2011. The STOXX® North America 600 Index added 8.4%.
European economy in slowdown
European indices also recovered, even if data showed that Eurozone industrial production dropped at the end of last year and Italy entered a recession last quarter. The pan-European STOXX® Europe 600 Index and the Eurozone’s EURO STOXX 50® Index increased 6.3% and 5.5%, respectively, in euros.
The STOXX® Asia/Pacific 600 Index advanced 6.4% in dollars.
Volatility decreased across the regions during January. The EURO STOXX 50® Volatility Index (VSTOXX®), which measures the implied volatility of EURO STOXX 50 Index options, ended the month at 15.11, down from 23.86 at the end of December. For an outlook on volatility and investment strategies for 2019, please click here.
Resources stocks lead gains
All 19 supersectors in the STOXX Global 1800 Index rose during the month, led by industries most geared to an economic expansion. The STOXX® Global 1800 Basic Resources Index came up on top, rising 11.8%. The STOXX® Global 1800 Oil & Gas Index was the second-best performer after adding 10.5%. New York crude prices rose 19% during the month.
The STOXX® Global 1800 Telecommunications Index was the month’s worst-performing supersector, rising 3%.
Developed and emerging markets
All 25 developed markets tracked by STOXX rose during the month when measured in euros, led by a 12.4% advance in the STOXX® Canada Total Market Index. The STOXX® Brazil Total Market Index led gains among 21 emerging markets, rising 17.5% when measured in dollars, thanks to a jump in the local currency. The STOXX® India Total Market Index was the only decliner in the developing-markets group, dropping 3.5%.
The STOXX® Developed Markets 2400 Index gained 7.6% in euros and 8% in dollar terms. The STOXX® Emerging Markets 1500 Index advanced 6.6% in dollars.
Investors also favored the highest dividend payers during January as measured by the STOXX® Global Maximum Dividend 40 Index. The gauge rose 8.7%, one percentage point above its benchmark.
Momentum in negative streak
There were mixed results from the iSTOXX® Europe Factor Market Neutral Indices during January. The indices hold a short position in futures on the STOXX Europe 600 to help investors neutralize systematic risk and focus on pure factor investing. Only three of the seven indices in the family had positive returns.
The iSTOXX® Europe Momentum Factor Market Neutral Index, which tracks stocks that have outperformed in the recent past, declined 2%. It was the eighth straight month of losses for the strategy, the longest negative streak since at least 2010. The iSTOXX® Europe Size Factor Market Neutral Index had the best performance, rising nearly 1%. The market-neutral gauges tracking the quality and value factors also rose during the month.
Thematic in positive performance
All but one of the eight STOXX revenue-based thematic indices outperformed the STOXX Global 1800 Index during January. The STOXX® Global Artificial Intelligence Index led the advance, adding 13.6%. It was followed by the iSTOXX® FactSet Automation & Robotics Index’s 11.8% advance. The exception was the iSTOXX® FactSet Breakthrough Healthcare Index, which advanced 6.8%.
STOXX’s AI-driven thematic indices also had a positive month. The iSTOXX® Yewno Developed Markets Blockchain Index, STOXX® AI Global Artificial Intelligence Index and STOXX® AI Global Artificial Intelligence ADTV5 Index each rose at least 8.7%.
- STOXX® Global 1800 Index
- EURO STOXX 50® Index
- STOXX® Europe 600 Index
- STOXX® North America 600 Index
- STOXX® Asia/Pacific 600 Index
- STOXX® USA 900 Index
- STOXX® Developed Markets 2400 Index
- STOXX® Emerging Markets 1500 Index
- iSTOXX® Europe Factor Market Neutral Indices
- STOXX® Global Maximum Dividend 40 Index
- STOXX® Global Artificial Intelligence Index
- iSTOXX® FactSet Automation & Robotics Index
- iSTOXX® FactSet Breakthrough Healthcare Index
- iSTOXX® Yewno Developed Markets Blockchain Index
- STOXX® AI Global Artificial Intelligence Index
- STOXX® AI Global Artificial Intelligence ADTV5 Index
1 All results are total returns after taxes.
2 CNBC, ‘Fed Chair Jerome Powell says the case for raising interest rates has weakened,’ Jan. 30, 2019.