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Blog Posts — May 3, 2019

Stocks Gain for Fourth Month in April

Global stocks extended their positive streak in April, adding a fourth month, with some regional benchmarks reaching record highs, as the outlook for the world’s economy improved and a majority of companies’ earnings beat estimates.

The STOXX® Global 1800 Index rose 3.5% in dollar terms1 during the month, after wrapping up in March its best calendar quarter since 2010. The global index has recouped nearly all of the loss from the fourth quarter of 2018 and is now just 1.1% away from a record high, when including the effect of dividend payments.

The US economy was shown to be on an even stronger footing than many expected. The Department of Commerce said Apr. 26 that the economy grew 3.2% in the first quarter, topping economists’ forecast of 2.3%.2 There was also reassuring news from China, where gauges of manufacturing activity, gross domestic product (GDP) and exports also beat estimates.

Even in the Eurozone the outlook could be getting rosier. Eurostat said Apr. 30 that GDP growth for the nations sharing the euro accelerated in the first quarter to 0.4% from 0.2% in the last three months of 2018.

Earnings delivering positive surprises

Of the 229 companies in the Standard & Poor’s 500 Index that reported first-quarter earnings through Apr. 26, more than 77% exceeded analysts’ expectations, according to Refinitiv.3 That compares to a long-term average of 65%. For the pan-European STOXX® Europe 600 Index, 58% of the companies that reported earnings topped estimates, Refinitiv said,4 more than the average 50% that do so historically.

Europe, North American markets reach record

The STOXX Europe 600 Index advanced 3.8% in euros during April, breaking a record high including dividends. Meanwhile, the Eurozone’s EURO STOXX 50® Index jumped 5.3%. It was the fourth monthly gain for both indices, their longest positive streak since May 2017.

The STOXX® USA 900 Index and the STOXX® North America 600 Index added 4%, topping their record highs from September 2018. The STOXX® Asia/Pacific 600 Index advanced 1.4%, in dollars.

Calm descended upon markets during the month. The average daily move for the EURO STOXX 50 was 0.2%, while a measure of annualized volatility for the Eurozone gauge fell to 6.3%, its fourth-lowest monthly reading since inception.

Media gains as mining shares struggle

The STOXX® Global 1800 Media Index was the best performer during April among the 19 supersectors in the STOXX Global 1800 Index, climbing 10.8%. The media gauge was followed by the STOXX® Global 1800 Banks Index, which rose 7.9%, and the STOXX® Global 1800 Technology Index, which added 7%.

At the other end, the STOXX® Global 1800 Basic Resources Index lost 2.8% and the STOXX® Global 1800 Health Care Index fell 2.7%, two of only five supersectors to record a negative performance during the month.

Developed and emerging markets

All but one of the 25 developed markets tracked by STOXX gained during the month when measured in either dollars or euros. The STOXX® New Zealand Total Market Index dropped 0.5% in euros and 0.7% in dollars, after topping the performance ranking in March. The STOXX® Developed Markets 2400 Index added 3.7% in euros, achieving a record high, and 3.5% in dollar terms.

Ten of 21 emerging-markets national indices dropped when measured in dollars. The STOXX® Pakistan Total Market Index paced losses with a 5.8% decline. The STOXX® South Africa Total Market Index came out on top, having jumped 7.3%. The STOXX® Emerging Markets 1500 Index advanced 1.4%.

Low-variance strategies lag

Minimum-variance strategies underperformed in most regions as broader markets advanced. The STOXX® Global 1800 Minimum Variance Index added 1.2% and its unconstrained version rose 0.7%.

Within income strategies, the STOXX® Global Maximum Dividend 40 Index, a measure of the world’s highest-dividend shares, jumped 6.7%. It was its strongest outperformance compared to the STOXX Global 1800 Index since December 2016.

In the thematics space, the STOXX® Global Smart Factory Index stood out with a 10.6% advance. The index, which was introduced in February this year, offers exposure to companies benefitting the most from the advancement of digitalization and new technologies in factories.

Pure factor investing underperforms again

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, continue to struggle. All but one in the family of seven indices had negative returns. The exception was the iSTOXX® Europe Momentum Factor Market Neutral Index, which rose 0.7%.

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1All results are total returns after taxes.
CBS News, ‘U.S. economy hit the gas in the first quarter,’ Apr. 26, 2019. 
Refinitiv, ‘This Week in Earnings,’ Apr. 26, 2019. 
Refinitiv, ‘STOXX 600 Earnings Outlook,’ Apr. 30, 2019.