Blog Posts — May 3, 2018

Stocks Rebound in April, Led by Europe

Stocks rebounded in April, paring more than half of the losses from the previous two months, amid stronger-than-expected economic and earnings data, and an easing of geopolitical tensions.

The STOXX® Global 1800 Index jumped 3% in euros in the month, and rose 1.2% in dollar terms.
A 2% drop in the euro against the dollar, its biggest retreat in one year, lifted the relative price of international holdings for Eurozone-based investors. During the first quarter of 2018, the global index fell 3.6% in euros and 1.3% in dollars.

European stocks performed significantly better in April, with the EURO STOXX 50® Index rising 5.8% and the STOXX® Europe 600 Index adding 4.5%. It was the best month since Dec. 2016 for both benchmarks. The STOXX® USA 900 Index advanced 0.3%.

April’s move comes as a break for investors who were whiplashed in February and March, when volatility returned to markets following a long stretch of solid and stable returns. This time around, the fundamentals of a global economy that remains on strong footing returned to the forefront. US first-quarter gross domestic product growth exceeded economists’ forecasts, as did an April measure of services and manufacturing activity in the Eurozone.

Indices withstood gains even as the 10-year US Treasury yield topped 3% for the first time in four years. Higher bond yields can make equities relatively more expensive for many investors.

Positive first-quarter earnings season

Corporations did their part in showing activity is strong. In the US, banks such as JPMorgan Chase & Co. and technology bellwethers including Alphabet Inc. surpassed earnings forecasts for the first quarter. In Europe, companies including BP Plc and Royal Philips NV also surprised positively.

According to FactSet, almost half of the STOXX 600 companies that reported first-quarter earnings through May 1 beat profit forecasts.

Geopolitical tensions, meanwhile, cooled down somewhat over the month. The trade rhetoric between the US and China appeared more restrained. Halfway through the month, Western allies bombed Syrian targets, but Russian-backed forces didn’t retaliate. The two Koreas held a historic meeting, a rapprochement that has raised hopes of denuclearization in North Korea.  

Crude oil rallies

The STOXX® Global 1800 Oil & Gas Index jumped 9.2% in dollars, the best performance among 19 supersectors in the STOXX Global 1800. New York crude oil prices rose 5.6% in April amid continued caps on production and concern that a deal that has allowed Iran to join suppliers may falter. Earnings reports from companies in the industry during April showed higher crude prices are already feeding into their bottom lines.

The STOXX® Global 1800 Retail Index and the STOXX® Global 1800 Basic Resources Index came in second and third during the month, with respective gains of 4.8% and 3.4%.

The STOXX® Global 1800 Personal & Household Goods Index, the STOXX® Global 1800 Media Index and the STOXX® Global 1800 Food & Beverage Index led declines in April, each falling more than 1%.

Greece, Luxembourg on top

Two national benchmarks that led losses in March went on to pace the market recovery in April.

The STOXX® Greece Total Market Index came on top among the 23 developed national markets tracked by STOXX, in local currencies, after scoring the second-worst performance a month earlier. The index gained 14% in April after a 9% decline in March. Similarly, the STOXX® Luxembourg Total Market Index posted the second-best performance in April, rising 11%. A month earlier, it was the worst performer, dragged lower by ArcelorMittal SA, the world’s biggest steelmaker.

The STOXX® Italy Total Market Index was April’s third-best performer, adding 6.9%.

At the other end, the STOXX® Belgium Total Market Index lost 0.8% in April, hurt by a 7.4% decline in brewer Anheuser-Busch InBev.

Dividend strategies outperform

Despite the rise in bond yields, dividend strategies had their strongest month in years in April. The STOXX® Global Select Dividend 100 Index and the STOXX® Global Select 100 EUR Index posted their best performance since Oct. 2015 when measured in euros.

Much of the advance can be attributed to energy companies, which have the highest relative dividends among all supersectors. Dividend strategies have struggled in the past year as the US Federal Reserve raises interest rates, increasing the appeal of bond payments relative to dividends for income investors.

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1 All returns include dividends net of taxes.