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Blog Posts — July 3, 2019

Stocks Regain Ground in June

Global stocks recovered in June from their May slump, as investors looked for a favorable resolution to trade disputes and leading central banks indicated their readiness to ease monetary policy should the economic situation demand it.

The STOXX® Global 1800 Index gained 6.6% in dollar terms1 after tumbling 5.7% in May. The global benchmark is now up 16.9% for 2019 and ended June just over half a percentage point away from a record.

All major regions advanced during the month. The STOXX® Europe 600 Index added 4.5% in euros and the Eurozone’s EURO STOXX 50® Index increased 6%. The STOXX® USA 900 Index and the STOXX® North America 600 Index gained 7%, with both reaching an all-time high during the month. The STOXX® Asia/Pacific 600 Index climbed 4.4% in dollars.

A dovish turn

Investors celebrated throughout the month as they raised bets that the Federal Reserve (Fed) and European Central Bank (ECB) will revert course and lower borrowing costs in coming months.

Fed Chairman Jerome Powell stated early in June that the central bank would respond “as appropriate” if the economy were to slow down.2 On Jun. 19, the Fed held interest rates steady while strongly indicating a rate cut could come soon, citing concerns about an economic downturn and a worsening of trade tensions.3

Traders in interest-rate futures are now pricing in at least a quarter-percentage-point cut in the key US interest rate by July.

Powell’s counterpart at the ECB sounded equally dovish. On Jun. 18, speaking at a conference in Sintra, Portugal, Mario Draghi said the central bank stood “ready to use all the instruments that are necessary” to sustain economic growth and inflation.4

On the international front, hopes emerged of a de-escalation of a trade spat between the US and China. Presidents Donald Trump and Xi Jinping restarted private talks ahead of a G20 summit in Japan at the end of the month, where an announcement was made that the two countries will resume trade talks. As a result, the US put new tariffs on hold.

Basic resources, chemicals lead gains

All 19 supersectors in the STOXX Global 1800 Index advanced during June, paced by those most sensitive to an economic upswing and to global commerce. The STOXX® Global 1800 Basic Resources Index rose 11.9%, the STOXX® Global 1800 Chemicals Index gained 10.3% and the STOXX® Global 1800 Automobiles & Parts Index added 9%.

All 25 developed markets tracked by STOXX rose during the month when measured in either dollars or euros. The STOXX® Developed Markets 2400 Index gained 4.3% in euros and 6.6% in dollar terms, ending the month 0.5% below a record close.

Seventeen of 21 emerging-markets national indices rose when measured in dollars. The STOXX® Emerging Markets 1500 Index added 4.9%.

Infrastructure, fintech among record-beating themes

Twelve of 20 STOXX® Thematic Indices, which seek exposure to the economic upside of disruptive global megatrends, outperformed the STOXX Global 1800 Index during June.

The STOXX® Global Broad Infrastructure Index, STOXX® Global Fintech Index and STOXX® Global Sharing Economy Index touched a record high during the month.

Factor exposure detracts

Exposure to pure factor premia yielded negative returns during June. 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. The iSTOXX® Europe Carry Factor Market Neutral Index retreated 1.5%, its sixth straight monthly loss.

The potential of factor returns also faltered as measured by the EURO STOXX® Multi Premia® and Single Premium Indices. The indices track seven distinctive sources of equity risk and returns, and, unlike the iSTOXX Europe Factor Market Neutral Indices, they are exposed to the market’s systematic risk.

Only the EURO STOXX® Quality Premium Index matched the benchmark’s performance during the month, with the remaining seven underperforming. Their benchmark, the EURO STOXX® Index, gained 5.2% in euros during June.

Minimum variance underperforms amid market rally

Minimum-variance strategies underperformed by a significant margin during June amid the broader risk-on rally.

The STOXX® Global 1800 Minimum Variance Index rose 4.1%, and its unconstrained version climbed 4.2%. That compares to the 6.6% advance for the STOXX Global 1800 Index. Both low-volatility measures, however, touched an all-time high in June, a feat unattained by the benchmark.

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1All results are total returns after taxes.
2‘CNBC, ‘Powell says the Fed will ‘act as appropriate to sustain the expansion,’’ Jun. 4, 2019. 
WSJ, ‘Fed Holds Rates Steady, Hints at Future Cuts if Outlook Doesn’t Improve,’ Jun. 19, 2019.
WSJ, ‘ECB Signals Possible Rate Cut Prompting Trump Tweets,’ Jun. 18, 2019.