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Blog Posts — July 5, 2023

Stocks rise in June on outlook for economy, inflation

In June, stocks had their second-best month this year on optimism that the global economy is weathering a slowdown and that inflation is easing.

The STOXX® Global 1800 index jumped 6.1% last month when measured in dollars and including dividends,[1] taking its gain in 2023 to 15%. 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 added 3.7% in euros last month after the greenback fell against the common currency. The STOXX® World AC index added 5.7% in dollars. 

The Eurozone’s EURO STOXX 50® gained 4.4% in euros in June, while the pan-European STOXX® Europe 600 rose 2.4%.[2] The STOXX® North America 600 climbed 6.8% in dollars, as did the STOXX® USA 500. The STOXX® Asia/Pacific 600 advanced 4.1% in dollars. The STOXX® Developed World rose 6% and the STOXX® Emerging Markets gained 3.9%.

Figure 1: STOXX Benchmark indices’ June risk and return

Source: Qontigo. Gross returns. Data as of June 30, 2023.

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

Source: Qontigo. Gross returns. Data as of June 30, 2023.

Germany’s DAX® gained 3.1% in the month. MDAX®, which gauges the performance of German mid-caps, climbed 4%. 

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

Fed pauses

Government releases during the month, from jobless claims to retail sales and housing starts, showed the US economy is being more resilient than some had expected in the face of rising interest rates. The Federal Reserve left interest rates unchanged on June 14, its first pause since March 2022, but signaled more hikes will likely be necessary to combat inflation. The annual pace of consumer-price inflation was the lowest in more than two years in May, a report showed last month, although underlying price pressures remained strong.[3]

Figure 3: Annual % returns for STOXX Global 1800 index

Source: Qontigo. Gross returns.

Figure 4: Select STOXX regional indices’ returns since Jan. 1, 2020

Source: Qontigo. Gross returns in dollars except for STOXX Europe 600 Index, which is in euros. Data from Dec. 31, 2019, to June 30, 2023.

Volatility drops 

The EURO STOXX 50® Volatility (VSTOXX®), which tracks EURO STOXX 50 options prices, fell to 13.6 at the end of last month from 20 in May. 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, slipped to 13.5 from 19.6 in May. 

Automakers lead gains

All 20 Supersectors in the STOXX Global 1800 had positive returns in June, led by a 19.1% jump for the STOXX® Global 1800 Automobiles & Parts index.

All 25 developed markets tracked by STOXX advanced in June when measured in dollars. Sixteen of 20 national developing markets tracked by STOXX rose in the month. 

Factor investing

On a global basis, Value was the leading style in June, according to the STOXX Factor indices. All but one style — Low Risk — beat the benchmark STOXX Global 1800. 

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

Source: Qontigo. Gross returns. Data as of June 30, 2023.

Climate benchmarks

Among climate benchmarks, the STOXX® Global 1800 Paris-Aligned Benchmark (PAB) (+5.9%)[4] and the STOXX® Global 1800 Climate Transition Benchmark (CTB) (+5.8%) underperformed their benchmark slightly in the month. 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 added 5.8%. 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 (+4.4%) performed broadly in line with the EURO STOXX 50 in June. Elsewhere, the STOXX® Global Climate Change Leaders (+4.5%), which selects corporate leaders that are publicly committed to reducing their carbon footprint, underperformed the STOXX Global 1800 by 164 basis points last month.

Sustainability indices

The STOXX® Global 1800 ESG-X index added 6.1% 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 ESG best-in-class integration, the EURO STOXX 50® ESG index added 4.2% in June. Germany’s DAX® 50 ESG index (+3%), which excludes companies involved in controversial activities and integrates ESG scoring into stock selection, slightly underperformed the benchmark DAX.

Among other STOXX sustainability families, the STOXX® Global 1800 ESG Broad Market rose 6.1% 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 5.8%, the EURO STOXX® ESG Target advanced 3.7% and the DAX® ESG Target added 2.4%. 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 climbed 5.4%. 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 climbed 2.8% 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. 

Thematic Indices: Copper Miners in focus

Among 29 STOXX® Thematic indices, 16 outperformed the benchmark STOXX Global 1800 last month. The STOXX® Global Copper Miners (+10.8%) was the best-performing index over the month.

Dividend strategies

Dividend strategies underperformed last month. The STOXX® Global Maximum Dividend 40 (+4.5%) selects only the highest-dividend-yielding stocks. The STOXX® Global Select Dividend 100 (+3.7%) tracks companies with sizeable dividends but also applies a quality filter such as a history of stable payments.

Minimum variance

Minimum variance strategies also struggled as investors avoided low-risk shares. The STOXX® Global 1800 Minimum Variance rose 3.5% and the STOXX® Global 1800 Minimum Variance Unconstrained added only 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] Reuters, “US consumer price increases slow; underlying inflation sticky,” June 14, 2023.
[4] Figures in parentheses show last month’s gross returns.