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Blog Posts — November 4, 2019

Stocks Extend Gains in October

Stocks posted their eighth monthly gain this year in October, with US indices climbing to a record high, amid positive macroeconomic and corporate news.

The STOXX® Global 1800 Index rose 2.7% in dollar terms1 during the month, taking the gain so far in 2019 to 21%.

The Eurozone’s EURO STOXX 50® Index increased 1.1% in euros, as did the STOXX® Europe 600 Index. The STOXX® North America 600 Index gained 2.1% and the STOXX® Asia/Pacific 600 Index increased 4.3%, both in dollars. The STOXX® Japan 600 Index rose 4.9% in yen, wrapping its best two-month average since November 2015.

Stocks jumped on Oct. 11 following a compromise whereas the US agreed to suspend an increase in tariffs on Chinese imports while China pledged to boost purchases of American agricultural products.

The US economy expanded at a rate of 1.9% in the third quarter, the government said Oct. 30, faster than the 1.6% expected by economists.2 That same day, the Federal Reserve cut the key interest rate for a third time since July.

The STOXX® USA 900 Index climbed 2.1% during the month and reached a record high when excluding dividends, helped by better-than-expected third-quarter earnings from companies including Apple Inc., JPMorgan Chase & Co. and Microsoft Corp. According to FactSet, 76% of US companies that have reported third-quarter earnings topped analysts’ estimates, a higher-than-average percentage.

The EURO STOXX 50 Index and STOXX Europe 600 Index are trading at record highs only when including dividend payments.

Tentative Brexit breakthrough

Sterling was the best-performing major currency during the month, jumping almost 5% against the dollar, as the UK government succeeded in getting an agreement to leave the European Union approved by Parliament. Still, the STOXX® UK 180 Index fell 1.5% in pounds as the stronger currency weighed on the performance of large multinationals. When measured in dollars, the index advanced 3.5%.

Gains across markets

In total, 23 of 25 developed markets tracked by STOXX advanced during the month when measured in dollars. The exceptions were the STOXX® Canada Total Market Index and the STOXX® Belgium Total Market Index. The STOXX® Developed Markets 2400 Index rose 2.4% in dollars and 0.2% in euro terms, as the common currency strengthened 2.3% against the greenback during the month.

Seventeen of 21 emerging-market national indices climbed when measured in dollars, led by a 9.3% advance in the STOXX® Hungary Total Market Index. The STOXX® Emerging Markets 1500 Index rose 4.2%.

The STOXX® Total Market Chile Index came up last in the group following an 8.5% retreat, posting its widest underperformance to the STOXX Emerging Markets 1500 Index on record. The country saw the largest popular unrest since the return of democracy in 1990 as more than one million people took to the streets to protest economic policies.

Carmakers lead advance

All but two of 19 supersectors in the STOXX Global 1800 Index gained in the month. The STOXX® Global 1800 Automobiles & Parts Index led returns with a 7% advance. The STOXX® Global 1800 Food & Beverage Index was the month’s worst performer, falling 1.7%.

Pure factor exposure falls back to losses

Factor returns underperformed during the month as measured by the EURO STOXX® Multi Premia® and Single Premium Indices.

All but two of eight indices in the family trailed their benchmark, the EURO STOXX® Index, which added 1.3% in euros during October. While all indices advanced during the month, the EURO STOXX® Low Risk Premium Index and EURO STOXX® Momentum Premium Index had the smallest returns — respectively 0.3% and 0.4%.

Minimum variance not in favor

Minimum-variance strategies had a poor month relative to their market-capitalization-weighted benchmarks, even if most broke new record highs in absolute terms.

The STOXX® Global 1800 Minimum Variance Index and its unconstrained version yielded less than half the return of the benchmark STOXX Global 1800 Index. Minimum-variance versions of the STOXX Europe 600 Index and STOXX USA 900 Index recorded a similarly wide underperformance. Such a difference is usually indicative of increasing investor risk appetite.

High dividend, climate and low carbon outperform

On a more positive note, most dividend strategies had a strong month. The STOXX® Global Maximum Dividend 40 Index, which selects the highest-yielding stocks, rose 3% in dollars on a net-return basis. The STOXX® Global Select Dividend 100 Index, which tracks companies with sizeable dividends but also applies a quality filter such as a history of stable payments, gained 3% on a gross-return basis.

Most STOXX Climate and Low Carbon Indices also fared better than the market.The STOXX® Global Climate Impact Ex Global Compact Controversial Weapons & Tobacco Index came ahead of the STOXX Global 1800 Index by 50 basis points. The EURO STOXX® 50 Low Carbon Index outperformed the flagship EURO STOXX 50 Index by 35 basis points.

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All results are total returns before taxes.
CNBC, ‘US GDP rose a better-than-expected 1.9% in the third quarter as consumers continued to spend,’ Oct. 30, 2019.