2019 Market Wrap: The Old Bull Still Has Legs

A decade-long bull market defied the odds and grew stronger in 2019, as investors took on risk despite growing geopolitical headwinds. 

The STOXX® Global 1800 Index rose 26.9% to a record between Jan. 1 and Dec. 18,  2019¹, poised for its eighth annual gain in the decade that ends and the strongest annual performance since 2013. Thematic and technology-focused indices were among the year’s brightest spots; developed markets outperformed emerging nations; and factor-based strategies disappointed. 

Benchmarks race ahead

The Eurozone’s EURO STOXX 50® Index increased 29.1% in 2019 through Dec. 18, in euros. The broader EURO STOXX® Index rose 27%. The STOXX® Europe 600 Index added 27.1%, and reached an all-time high during 2019 when excluding the effect of dividends. 

The STOXX® North America 600 Index increased 30% and the STOXX® Asia/Pacific 600 Index rose 19.1%, both in dollar terms.

Central banks in supportive stance

Investors had plenty to worry about during the year, from economic deceleration in China to the prospect of an abrupt British exit from the European Union. But what caught most headlines was a trade spat between China and the US, with the latter imposing tariffs on the Asian country as well as on other commercial partner nations. The US and China negotiated a trade truce as the year drew to an end. 

On the other hand, renewed monetary stimulus from the world’s largest central banks helped underpin a more bullish sentiment. The Federal Reserve cut interest rates three times during 2019, while the European Central Bank reduced its deposit rate further into negative territory and resumed bond purchases to bring down the cost of borrowing.

While the Eurozone continues to show weak rates of economic growth, the US economy proved throughout the year to be more resilient than many had expected. 

Table 1 shows the year-to-date performance for 2019 for 156 STOXX and iSTOXX indices. Returns are in dollars unless otherwise stated. 

Table 1

Two emerging markets led gains worldwide: the STOXX® Greece Total Market Index and the STOXX® Russia Total Market Index. This, however, wasn’t representative of the asset class: the STOXX® Emerging Markets 1500 Index rose 15.7% in the year, in dollars; significantly behind the 26.9% advance for the STOXX® Developed Markets 2400 Index. 

The STOXX® Chile Total Market Index came out at the bottom of the ranking, as the country saw the largest popular unrest since the return of democracy in 1990. 

Technology on top

All 19 supersectorsin the STOXX Global 1800 Index gained in the year, led by a 44.8% jump in the STOXX® Global 1800 Technology Index. The STOXX® Global 1800 Oil & Gas Index was the worst performer, adding a relatively meagre 11.7%.

Thematic drivers underpin indices

Whilst all 20 STOXX Thematic Indices advanced during the year, fourteen of them outperformed the Global 1800 Index. The STOXX® Global Smart Factory Index led the advance with a 44.5% gain. The iSTOXX® FactSet Breakthrough Healthcare Index was the worst performer, rising only 11%.

Pure factor exposure yields negative return

It was, however, a poor year for factor strategies.All seven iSTOXX® Europe Single and Multi-Factor Market Neutral Indices, which hold a short position in futures on the STOXX Europe 600 to help investors neutralize systematic risk, had a negative return. The iSTOXX® Europe Size Factor Market Neutral Index had the worst performance, shedding 10.7%. The average loss for the group was 5.4%. 

Premia indices in mixed performance

Factor returns also underperformed as measured by the EURO STOXX® Multi Premia® and Single Premium Indices, which are exposed to the market’s systematic risk. 

Five of the eight indices did worse than their benchmark, the EURO STOXX Index. The EURO STOXX® Reversal Premium Index lagged by the widest margin during 2019, having risen just 14.1%.

ESG, low carbon, climate

Price performance worked in favor for the many investors moving into environmental, social and governance (ESG) and climate strategies during the year.

The EURO STOXX® 50 Low Carbon Index, STOXX® Global 1800 Low Carbon Index, STOXX® Global ESG Impact Index and STOXX® Global Climate Impact Ex Global Compact Controversial Weapons & Tobacco Index were among gauges that beat their benchmarks. 

The STOXX ESG-X Indices, which follow standardized norm- and product-based exclusions, performed in line with their benchmarks. So did the EURO STOXX 50® ESG Index, which additionally integrates ESG scoring to select those stocks with the most responsible profiles. 

Minimum variance performs strongly

Amid the market’s gains, stocks with the lowest recorded volatility lagged. The STOXX® Global 1800 Minimum Variance Index rose 21.4% and the STOXX® Global 1800 Minimum Variance Unconstrained Index climbed 19.9%. 

The STOXX® Europe 600 Minimum Variance Index added 22.4%, while its unconstrained version advanced 22.7%.

Income underperforms

Income strategies were another area that struggled in relative terms. The STOXX® Global Maximum Dividend 40 Index, which selects the highest-dividend-yielding stocks, rose 10.8% 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 20.4% on a gross-return basis.

Insight into strategies

This year STOXX published a number of research papers that delve into many of the strategies mentioned in this review. They include coverage of European benchmarks, ESG-X Indices, EURO STOXX 50 ESG, performance of and factor exposure of minimum variance, thematic strategies and volatility as an investable asset class. We invite you to download the papers and read more about STOXX indices. 

¹ Gross returns in dollars.