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Blog Posts — January 4, 2024

Stocks extend gains in December, lifting indices to record highs

Stocks extended gains in December, pushing the STOXX® Global 1800 index to a record high, on optimism that the Federal Reserve has managed to bring inflation under control without causing a recession. 

The STOXX Global 1800 jumped 4.9% last month when measured in dollars and including dividends,[1] for a 2023 return of 23.9% — its best annual showing since 2019 and second-best in the past decade. The benchmark slid 17.9% in 2022, its worst year since 2008, as central banks pressed ahead with higher rates to fight runaway inflation. The index rose 3.6% in December when measured in euros.  

The STOXX® World AC index climbed 3.6% in dollars in December. The Eurozone’s EURO STOXX 50® added 3.2% in euros, while the pan-European STOXX® Europe 600 advanced 3.9%, both reaching a record.[2] The STOXX® North America 600 gained 4.7% in dollars, while the STOXX® USA 500 rose 4.6%, both also breaking an all-time high. The STOXX® Asia/Pacific 600 climbed 5.6% in dollars to a two-year high. The STOXX® Developed World climbed 4.9% and the STOXX® Emerging Markets rose 4.1%.

Figure 1: STOXX Benchmark indices’ December risk and return

Source: STOXX. Gross returns. Data as of Dec. 29, 2023.

Figure 2: STOXX Equity World indices’ December risk and return

Source: STOXX. Gross returns. Data as of Dec. 29, 2023.

Germany’s DAX® rose 3.3% in the month. MDAX®, which gauges the performance of German mid-caps, increased 3.6%. 

For a complete review of all indices’ performance last month, visit our December index newsletter.

The ‘everything’ rally

During 2023, economic reports showed a downward trend in inflation while economic activity held up. On Dec. 13, Fed policymakers released a forecast for three interest-rate cuts in 2024, and Chair Jerome Powell said monetary policy easing may be warranted amid sustainable job growth. Optimism that interest rates would start falling as early as this year lifted the price of everything in 2023 – from stocks to bonds and cryptocurrencies. 

Figure 3: Total annual % returns for STOXX World AC index


Source: STOXX. Gross returns.

Figure 4: Select STOXX benchmarks’ returns in 2023


Source: STOXX. Gross returns in dollars except for STOXX Europe 600 Index, which is in euros. Data from Dec. 30, 2022, to Dec. 29, 2023.

Volatility little changed

The EURO STOXX 50® Volatility (VSTOXX®), which tracks EURO STOXX 50 options prices, fell to 13.6 at the end of last month from 13.8 in November. A higher VSTOXX reading suggests investors are paying up for puts that offer insurance against stock price drops. The VDAX-New®, which measures volatility in German equities, rose to 13.5 from 13.3 in November. 

Technology stocks win 2023

All 20 Supersectors in the STOXX Global 1800 had positive returns in the month, led by the STOXX® Global 1800 Construction & Materials index. For the year, the STOXX® Global 1800 Technology index was the best performer with a 65.2% jump.

All 25 developed markets tracked by STOXX rose in the month when measured in dollars. For the entire year, all markets except Hong Kong gained. Sixteen of 20 emerging markets tracked by STOXX rose in the year. 

Factor investing

On a global basis, Size showed the best performance in December while Low Risk was the weakest style, according to the STOXX Factor indices (Figure 5). The Size factor tilts towards the smallest-capitalization stocks. 

For 2023, the STOXX® Global 1800 Ax Quality was the strongest factor with a 30.6% gain. 

Figure 5: STOXX Factor (Global) indices’ December risk and return characteristics

Source: STOXX. Gross returns. Data as of Dec. 29, 2023.

Climate benchmarks

Among climate benchmarks, the STOXX® Global 1800 Paris-Aligned Benchmark (PAB) (+4.6%)[3] and the STOXX® Global 1800 Climate Transition Benchmark (CTB) (+4.7%) underperformed their benchmark slightly in the month. The PAB and CTB indices follow the requirements outlined by the European Commission’s climate benchmarks regulation.

Within the STOXX Low Carbon indices, the EURO STOXX 50® Low Carbon (+3.3%) performed in line with the EURO STOXX 50. Elsewhere, the STOXX® Global Climate Change Leaders (+4%), which selects corporate leaders that are publicly committed to reducing their carbon footprint, underperformed the STOXX Global 1800 by nearly 1 percentage point last month.

Sustainability indices

The STOXX® Global 1800 ESG-X index gained 5.1% in the month. The STOXX® ESG-X indices are versions of traditional, market-capitalization-weighted benchmarks that observe standard responsible exclusions

Within indices that combine exclusions and best-in-class ESG integration, the EURO STOXX 50® ESG index rose 3.5%. Germany’s DAX® 50 ESG index (+3.3%), which excludes companies involved in controversial activities and integrates ESG scoring into stock selection, matched the benchmark DAX’s return in the month.

Among other STOXX sustainability families, the STOXX® Global 1800 ESG Broad Market added 5% 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 rose 4.8%, the EURO STOXX® ESG Target gained 3.2% and the DAX® ESG Target added 3%. 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 advanced 5.7%. 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 added 3.4% in the month. 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. 

Thematics, dividend strategies

Twenty-nine of 34 STOXX® Thematic indices outperformed the benchmark STOXX Global 1800 last month, led by the STOXX® Global Copper and Metals Mining (+12.7%). 

Dividend strategies had mixed performances over the month and underperformed for all of 2023. The STOXX®Global Maximum Dividend 40 (+3.4%) selects only the highest-dividend-yielding stocks. The STOXX® Global Select Dividend 100 (+7.7%) tracks companies with sizeable dividends but also applies a quality filter such as a history of stable payments.

Minimum variance

Minimum variance strategies had weak relative performances last month. The STOXX® Global 1800 Minimum Variance rose 2.2% and the STOXX® Global 1800 Minimum Variance Unconstrained advanced 3.1%. 

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.