Global stocks wrapped up their best calendar quarter in over eight years in March, as the Federal Reserve halted its interest-rate increases, and expectations strengthened for a trade truce between the US and China.
The STOXX® Global 1800 Index rose 1.3% in dollar terms1 during March, taking its advance over the quarter to 12.3%, its best performance since the third quarter of 2010. Gains last month accrued even as fears mounted that the US may be poised for an economic recession.
The pan-European STOXX® Europe 600 Index advanced 2.1% and the Eurozone’s EURO STOXX 50® Index increased 1.8%, in euros, during March. The STOXX® USA 900 Index rose 1.6%, the STOXX® North America 600 Index added 1.7% and the STOXX® Asia/Pacific 600 Index advanced 0.6%, in dollars.
Despite the recent rebound, the STOXX Global 1800 Index is still 3.4% below a high reached last September.
No more rate hikes
On Mar. 20, the US central bank cut its prediction for 2019 rate hikes amid slower economic growth overseas and a lower inflation outlook. Fed members, whose median forecast had in December implied two quarter-point rises this year, now predict no change at all in 2019 and just one increase next year. The central bank announced it will slow down the reduction of its holdings of US Treasury bonds, aiming to underpin economic growth.
While the American economy remains on a strong footing, signs abound that an expansion in the rest of the world has hit a snag, a situation that could spill over to the US.
On Mar. 22, IHS Markit published its barometer of business activity in the Eurozone, which showed a steeper-than-expected slowdown for last month. Germany’s manufacturing sector, meanwhile, contracted further.
ECB takes a cautious stance
The reports were a confirmation that the European Central Bank’s change of path earlier in the month had been warranted. The ECB indicated on Mar. 7 that interest rates would remain unchanged this year for longer than previously forecast and announced a new round of cheap loans for banks to help stimulate investment and consumption.
On Mar. 22, the fixed-income market flashed two warning signs that both reflected and reinforced investors’ anxiety. Yields on 10-year Treasuries plunged below those of 3-month bills, a so-called inversion of the yield curve that had last happened in 2007 and that is considered by many a harbinger of recession. Also, yields on 10-year German bunds dipped that day below zero for the first time since 2016.
Resources stocks lead gains
With bond yields falling, banks posted the second-worst performance among the 19 supersectors in the STOXX Global 1800 Index during March amid concern that low borrowing costs will stymie lenders’ income growth. The STOXX® Global 1800 Banks Index fell 4.41%.
Only the STOXX® Global 1800 Automobiles & Parts Index, with a 4.43% decline, fared worse. BMW AG, the German luxury-car maker, on Mar. 20 forecast a “significant” decrease in earnings this year, citing an economic slowdown, trade tensions and higher investments. BMW shares lost 7.2% during March.
Two supersectors tied as best performers during the month. The STOXX® Global 1800 Food & Beverage Index and the STOXX® Global 1800 Real Estate Index both rose 4.6%.
Developed and emerging markets
All but four of the 25 developed markets tracked by STOXX gained during the month when measured in euros, led by a 7.1% advance in the STOXX® New Zealand Total Market Index. The STOXX® Developed Markets 2400 Index added 2.6% in euros and 1.2% in dollar terms.
Emerging markets had a more mixed month, with 11 of the 21 national indices tracked by STOXX ending in negative territory. The STOXX® Turkey Total Market Index led losses with a 14.6% decline in dollar terms following a drop in the lira. The STOXX® India Total Market Index came out on top, having jumped 10.6%. The STOXX® Emerging Markets 1500 Index advanced 0.8% in dollars.
The STOXX® China A 900 Index rose 6.3% during March, taking its gain in the first three months of the year to 32.2%, its best quarter since 2009.
Low volatility strategies do well
Minimum-variance strategies outperformed in most regions, perhaps indicating that investors who led the month’s buying favored a low-variance premium. The STOXX® Global 1800 Minimum Variance Index added 2.1% and its unconstrained version rose 1.6%. The STOXX® Europe 600 Minimum Variance Index and its unconstrained version climbed, respectively, 3.4% and 3.2%.
However, the STOXX® Global Maximum Dividend 40 Index, a measure of the world’s highest-dividend shares, lost 3% during March. The index was dragged lower by its largest constituent, Old Mutual Ltd., whose profits missed some estimates.
Pure factor investing struggles
The iSTOXX® Europe Factor Market Neutral Indices, which hold a short position in futures on the STOXX Europe 600 to help investors neutralize systematic risk, struggled during March. All seven indices in the family had negative returns, with an average drop of 0.6%.
The EURO STOXX® Multi Premia® and Single Premium Indices, which integrate the academic research-based Multi Premia methodology developed by STOXX’s partner Finreon, performed better. Six of the eight indices beat the EURO STOXX® Index’s 1.4% advance during the month, led by the EURO STOXX® Momentum Premium Index.
In the thematics space, the STOXX® Global Artificial Intelligence Index added 2.6% during March. The gauge has gained 25% so far during 2019, more than double the return of its benchmark.
- STOXX® Global 1800 Index
- EURO STOXX 50® Index
- STOXX® Europe 600 Index
- STOXX® North America 600 Index
- STOXX® Asia/Pacific 600 Index
- STOXX® USA 900 Index
- STOXX® Developed Markets 2400 Index
- STOXX® Emerging Markets 1500 Index
- iSTOXX® Europe Factor Market Neutral Indices
- STOXX® Global Maximum Dividend 40 Index
- STOXX® Global Artificial Intelligence Index
1All results are total returns after taxes.