Blog Posts — April 10, 2018

Stocks Endure Second Month of Losses in March

Global stocks fell for a second consecutive month in March, as concern about a disruption in trade and weakness in technology shares dampened investor sentiment.

The STOXX® Global 1800 Index fell 2.2%1 in March when measured in dollars. The index has lost 6.2% in the past two months, the first two-month retreat since February 2016. It lost 3% in euros in March after a 0.9% advance in the common currency decreased the relative value of dollar-denominated holdings in the index.

During the first quarter of 2018, the global index fell 1.3% in dollars and 3.6% in euros.

The STOXX® USA 900 Index declined 2.3% in March. The EURO STOXX 50® Index of blue-chip companies in the Eurozone lost 2.2%. The pan-European STOXX® Europe 600 Index, which includes companies from non-euro nations, retreated 2%.

Investors have been whiplashed since volatility returned to markets in February following a long stretch of solid and stable returns. While the global economic expansion appears on solid footing, some investors have said equities have climbed too far and are susceptible to disappointments. Primarily among them is the possibility of faster-than-expected hikes in US interest rates.

The yield on ten-year US Treasurys fell to 2.74% on Mar. 29 from a close of 2.82% at the end of February.

2018 volatility kicks-in high

The last two months have been defined by wide market swings. Between February and March, the STOXX Global 1800 index closed 1% or more in either direction in 14 instances. By comparison, there were only three such occasions throughout 2017.

The EURO STOXX 50® Volatility Index, or VSTOXX®, declined from the highs of February but remained at higher levels than in recent months. The gauge of European option prices traded at an average of 18 in March, down from an average 21 in February. In 2017, the VSTOXX traded at an average of 15.

Tariffs on key imports

On Mar. 1, the U.S. president announced he was ordering a 25% tariff on steel imports and a 10% levy on aluminum imports, triggering a sell-off in global markets. The announcement was followed by a tweet where Trump wrote, “Trade wars are good, and easy to win.” The tariffs were enforced although many countries were later exempted temporarily.

China responded by raising duties on American imports from soybeans to cars.

Cyclical sectors underperform

The STOXX® Global 1800 Banks Index, the STOXX® Global 1800 Chemicals Index and the STOXX® Global 1800 Chemicals Index led declines in March among 19 supersectors, falling each 4.6% on average.

At the other end, the STOXX® Global 1800 Utilities Index rose 4%. The industry’s dividends became more attractive for income investors following a decline in benchmark bond yields over the month.

Technology stocks sell down
The STOXX® Global 1800 Technology Index fell 3.7%. Facebook shares slumped 10% over the month after reports surfaced that the company had provided personal data on 50 million users that was eventually used to target potential Trump voters during the 2016 U.S. presidential election. Facebook has said it will investigate the incident, but the company already faces a backlash from legislators and advertisers.  

Facebook shares, which account for the third-biggest weighting in the STOXX Global 1800 Technology, have risen more than six-fold in the past five years.

Steelmaker ArcelorMittal weighs on country’s index
The STOXX® Luxembourg Total Market index was the month’s worst performer among the 23 developed national markets tracked by STOXX. The benchmark shed 10% in local currency, dragged lower by ArcelorMittal, its largest component. The world’s biggest steelmaker was hit by Trump’s announcement of new steel tariffs.   

The STOXX® Greece Total Market followed with a 9% decline, and the STOXX® Israel Total Market had the third-worst performance after losing 4.8%.

At the other end, the STOXX® Portugal Total Market managed the only positive performance among all national markets, adding 1.2%. Shares of utility EDP Energias de Portugal and of energy provider Galp Energia lifted the index.

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1 All returns include dividends net of taxes.