Stocks tumbled in June, with the STOXX® Global 1800 index sliding into a bear market, a drop larger than 20% from its recent peak, on concern the world’s major economies may be headed for a recession while central banks are fighting runaway inflation.
The global benchmark lost 8.7% when measured in dollars and including dividends,1 its steepest monthly retreat since March 2020. The index posted a loss of 16.1% in the second quarter and is poised for its worst year since the Global Financial Crisis in 2008. For June, the benchmark dropped 6.4% in euros after the common currency dropped 2.4% against the greenback.
The STOXX® North America 600 fell 8.4% in dollars, while the STOXX® USA 500 slipped 8.2%.2 The pan-European STOXX® Europe 600 dropped 8% in euros and the Eurozone’s EURO STOXX 50® decreased 8.7%. The STOXX® Asia/Pacific 600 retreated 7.6% in dollars.
Figure 1: Benchmark indices’ June risk and return characteristics
Germany’s DAX® fell 11.2% in the month. MDAX®, which gauges the performance of German mid-caps, dropped 13.7%.
Wall Street economists have raised their forecasts that the US will be hit by a recession after the Federal Reserve raised the key interest rate on June 15 by the most in nearly three decades to contain inflation. Tightening financial conditions have already weighed on manufacturing, business and consumer confidence in the US and elsewhere, reports showed during the month.
| For a complete review of all indices’ performance last month, visit our June index newsletter. |
Figure 2: Annual % returns for STOXX Global 1800 index
Figure 3: Returns since January 1, 2020
Volatility rises
The EURO STOXX 50® Volatility (VSTOXX®), which tracks EURO STOXX 50 options prices, climbed to 29.8 at the end of last month from 25.2 in May. A higher VSTOXX reading suggests investors are paying up for puts that offer insurance against stock price drops. The VDAX-New®, which tracks volatility in German equities, also rose to 29.8, from 23.5 in May.
Developed and emerging markets
All but one — Hong Kong — of 25 developed markets tracked by STOXX fell during June when measured in dollars. The STOXX® Developed Markets 2400 index lost 8.7% in dollars and 6.5% in euros.
Nineteen of 20 national developing markets retreated in the month on a dollar basis, with China as the sole positive market. The STOXX® Emerging Markets 1500 index plummeted 10.6% in the US currency and 8.4% in euros.
Mining companies lead losses in month
None of the 20 Supersectors in the STOXX Global 1800 avoided the sell-off. The STOXX® Global 1800 Basic Resources (-18%)3 led losses.
Factor investing
Momentum was the worst-performing style in the month that ended, while Low Risk fared the best, according to the STOXX Factor indices. The STOXX® Global 1800 Ax Momentum dropped 11.8%.
Figure 4: STOXX Factor (Global) indices’ June risk and return characteristics
Climate benchmarks
Among climate benchmarks, the STOXX® Global 1800 Paris-Aligned Benchmark (PAB) and the STOXX® Global 1800 Climate Transition Benchmark (CTB) both fell 7.5%. The PAB and CTB indices follow the requirements outlined by the European Commission’s climate benchmarks regulation.
The STOXX® Willis Towers Watson World Climate Transition Index dropped 8.2%. The STOXX Willis Towers Watson Climate Transition Indices (CTIs) employ a unique Climate Transition Value at Risk (CTVaR) methodology that quantifies the anticipated impact of an economic transition on equity valuations. The CTIs look beyond carbon emissions and make a forward-looking, bottom-up evaluation of asset repricing risks in a decarbonization pathway.
Among the STOXX Low Carbon indices, the EURO STOXX 50® Low Carbon (-8%) beat the EURO STOXX 50 by 74 basis points. Elsewhere, the STOXX® Global Climate Change Leaders (-7.2%), which selects corporate leaders that are publicly committed to reducing their carbon footprint, outperformed the STOXX Global 1800 index by 1.5 percentage points last month.
ESG-X and ESG indices
The STOXX® Global 1800 ESG-X index fell 8.7% in the month. The STOXX® ESG-X indices are versions of traditional, market-capitalization-weighted benchmarks that observe standard responsible exclusions of leading asset owners.
Within indices that combine exclusions and ESG best-in-class integration, the EURO STOXX 50® ESG index dropped 8.9%. Germany’s DAX® 50 ESG index (-11.4%), which excludes companies involved in controversial activities and integrates ESG scoring into stock selection, slightly underperformed the benchmark DAX.
Sustainability indices
Among other STOXX sustainability families, the STOXX® Global 1800 ESG Broad Market index lost 8.6% in the month. The STOXX ESG Broad Market indices apply a set of compliance, product involvement and ESG performance exclusionary screens on a starting benchmark universe until only the 80% top ESG-rated constituents remain.
The STOXX® Global 1800 ESG Target slid 9.1%, the EURO STOXX® ESG Target lost 9.5% and the DAX® ESG Target retreated 11.1%. The STOXX and DAX ESG Target indices seek to significantly improve the benchmark portfolio’s ESG profile while mirroring its returns as closely as possible. Through a series of constraints, the indices implement an optimization process to maximize the overall ESG score of the portfolio while limiting the tracking error to the benchmark.
The STOXX® Global 1800 SRI dropped 8.6%. The STOXX SRI indices apply a rigorous set of carbon emission intensity, compliance and involvement screens, and track the best ESG performers in each industry group within a selection of STOXX benchmarks.
Finally, the DAX® ESG Screened fell 10.8%. The index reflects the composition of the DAX benchmark minus companies that fail to pass norms-based and controversial weapons screenings, meet minimum ESG ratings or are involved in certain business activities considered undesirable from a responsible investing perspective.
Thematic indices
There were mixed performances relative to the benchmark from the STOXX® Thematic indices in the month that ended. The indices seek exposure to the economic upside of disruptive global megatrends and follow two approaches: revenue-based and artificial-intelligence-driven.
Fourteen of 24 revenue-based thematic indices underperformed the STOXX Global 1800. The STOXX® Global Smart Factory (-14%) was the group’s worst performer.
Among the STOXX artificial-intelligence-driven thematic indices, the STOXX® AI Global Artificial Intelligence index (-10.9%) and its ADTV5 version (-11%) underperformed the STOXX Global 1800 index during June. The iSTOXX® Yewno Developed Markets Blockchain index fell 10.4%.
Dividend strategies
Dividend strategies also struggled. The STOXX® Global Maximum Dividend 40 (-11.2%) selects only the highest-dividend-yielding stocks. The STOXX® Global Select Dividend 100 (-10.8%), meanwhile, tracks companies with sizeable dividends but also applies a quality filter such as a history of stable payments.
Minimum variance
There were, however, strong relative performances from Minimum variance strategies. The STOXX® Global 1800 Minimum Variance fell 4.1%, as did the STOXX® Global 1800 Minimum Variance Unconstrained. The STOXX® Europe 600 Minimum Variance index lost 5.1%, while its unconstrained version dropped 3.5%.
The STOXX Minimum Variance Indices come in two versions. A constrained version has similar exposure to its market-capitalization-weighted benchmark but with lower risk. The unconstrained version, on the other hand, has more freedom to fulfill its minimum variance mandate within the same universe of stocks.
1 All results are total returns before taxes unless specified.
2 Throughout the article, all European indices are quoted in euros, while global, North America, US, Japan and Asia/Pacific indices are in dollars.
3 Figures in parentheses show last month’s gross returns.