Global equity indices rose by the most in six months in July, as buoyant economic and corporate data helped turn investors’ focus away from fears of a trade war.
The STOXX® Global 1800 Index climbed 3.1%1 in dollar terms in the month – its best performance since January – paced by health care companies and banks. It gained 2.9% in euros in the month. The index is now up 3.3% in dollars and 6% in euros so far this year.
The EURO STOXX 50® Index of blue chips in the Eurozone rose 3.9% in euros in July, while the pan-European STOXX® Europe 600 Index added 3.1%. The performance helped revert year-to-date losses for both indices. The STOXX® USA 900 Index rose 3.5%, its fourth consecutive monthly advance.
Growth with limited inflation
The US economy grew at an annual 4.1% pace in the second quarter, the government said Jul. 27, the strongest pace of expansion since 2014. The report signaled that healthy consumer spending and corporate investment continue to underpin momentum in the decade-old economic recovery.
That contrasted with the situation in Europe. The Eurozone economy grew at an annualized rate of 1.4% in the second quarter, the European Union’s statistics agency said on Jul. 31, down from 1.5% in the first three months of the year. It was the slowest growth rate in three years.
Despite the economic slowdown, corporate profits in Europe are holding up. Of the 178 STOXX 600 companies that reported second-quarter revenue through Jul. 31, 60% exceeded estimates, according to Thomson Reuters data.
Trade talks in the agenda
While the fundamentals of the global economy remain on firm footing, rising interest rates and political and economic nationalism have weighed on stocks’ performance this year.
The antagonistic rhetoric around trade, however, eased somewhat during the month. US President Trump talked of ‘a very strong understanding’ following a meeting with European Commission President Jean-Claude Juncker. As the month drew to an end, a Bloomberg report2 said US and Chinese authorities aimed to meet to defuse an escalation in trade protectionism.
Emerging markets recover
The STOXX® China A 900 Index posted a rebound of only 0.8% in July, in yuan, after sliding 8.1% a month earlier. The modest performance reflects the fact that, despite a more positive tone in recent days, US-China trade relations remain a thorny issue, strategists said. The STOXX® Emerging Markets 1500 Index did better. The index rebounded 3.7% in July after tumbling 8.9% in total in the previous two months.
Mining companies fall
All but one of the 19 supersectors in the STOXX Global 1800 posted a gain in the month. The exception was the STOXX® Global 1800 Basic Resources Index, which shed 0.9% as the price of commodities including oil and copper fell.
At the other end, the STOXX® Global 1800 Health Care Index led gains with a 6.3% advance following better-than-expected earnings reports from pharmaceutical giants Pfizer Inc. and Johnson & Johnson. The STOXX® GLOBAL 1800 Technology Index rose 2.2% despite a 10% slump in Facebook Inc. shares, which form the index’s third-largest weighting.
With a 9.5% advance, the STOXX® Luxembourg Total Market Index jumped to the top performance slot among 23 developed markets tracked by STOXX in July, from the bottom slot a month earlier.3
The STOXX® Ireland Total Market Index came in last in July after falling 2.2%. The Irish gauge was the only developed-market measure to post a negative return in the month.
Factor style rotation
Increased bullishness may have been behind a style rotation among factor strategies. The iSTOXX® Europe Carry Factor Index, which beat all other five strategies in the iSTOXX® Europe Factor Indices in the previous two months, rose 1.4%. That compares with an average gain of 2.7% for the indices tracking value, size, low risk, momentum and quality strategies.
The Carry Factor Index targets stocks with high growth potential based on earnings and dividends.
- STOXX® Global 1800
- EURO STOXX 50®
- STOXX® Europe 600
- STOXX® China A 900 Index
- STOXX® Emerging Markets 1500 Index
- iSTOXX® Europe Factor Indices
1 Total return after taxes.