STOXX World index extends advance in July amid expectations for rate cuts

Stocks rose in July amid expectations that the Federal Reserve is getting close to its first interest-rate cut since 2020.

The STOXX^® World AC index rose 1.7% over the month when measured in US dollars and including dividends^[1], taking its 2024 gain to 13.4%. The STOXX^® Global 1800 index added 1.9% in the month.

The Eurozone’s EURO STOXX 50^® dropped 0.3% in euros on a total-return basis, while the pan-European STOXX^® Europe 600 added 1.4%.^[2] The STOXX^® North America 600 rose 1.4% in dollars and the STOXX^®USA 500 increased 1.2%, its eighth advance in nine months. The STOXX^® Asia/Pacific 600 jumped 4.9% in dollars. The STOXX^® Developed World rose 2.2% and the STOXX^® Emerging Markets gained 0.4%.

Figure 1: STOXX Equity World indices’ July risk and return

_{Source: STOXX. Gross returns. Data as of July 31, 2024.}

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

_{Source: STOXX. Gross returns. Data as of July 31, 2024.}

Germany’s DAX^® increased 1.5% in the month. MDAX^®, which gauges the performance of German mid-caps, climbed 0.8%. 

Falling yields

Weak US economic reports and a faster-than-expected deceleration in prices in June bolstered investors’ forecasts that interest rates in the world’s largest economy may soon drop. The yield on 10-year US Treasurys, seen as a gauge for interest-rate expectations, fell from 4.5% at the start of July to 4.1% by month-end. Speaking on the last day of the month, Fed Chair Jerome Powell said the central bank could cut rates as early as September.

It was, in any case, a month of two halves. The STOXX World AC climbed as much as 3.7% in the month by July 16, before halving those gains. The retreat was led by the same large-cap, technology stocks that have spearheaded this year’s market rally. 

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

_{Source: STOXX. Gross returns.}

Figure 4: Select STOXX benchmarks’ returns since 2023

_{Source: STOXX. Gross returns in dollars except for STOXX Europe 600 Index, which is in euros. Data from Dec. 30, 2022, to July 31, 2024.}

Volatility drops 

The EURO STOXX 50^® Volatility (VSTOXX^®), which tracks EURO STOXX 50 options prices, slipped to 15.7 at the end of last month from 18.3 in June. 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, fell to 14.4 from 15.8 in June. 

Factor investing          

Among the STOXX Factor indices, the Size and Low Risk signals led gains last month (Figure 5).

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

_{Source: STOXX. Gross returns. Data as of July 31, 2024.}

Climate benchmarks

Within climate benchmarks, the STOXX^® Global 1800 Paris-Aligned Benchmark (PAB) rose 1%, while the STOXX^® Global 1800 Climate Transition Benchmark (CTB) climbed 1.3%. The PAB and CTB indices follow the requirements outlined by the European Commission’s climate benchmarks regulation.

Sustainability indices

The STOXX^® Global 1800 ESG-X index advanced 1.7% 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 was little changed over the month. Germany’s DAX^® 50 ESG index (+0.4%)^[3], which excludes companies involved in controversial activities and integrates ESG scoring into stock selection, trailed the benchmark DAX in the month.

The STOXX^® Global 1800 SRI rose 2.6%. The STOXX SRI indices apply a 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 0.6% 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, digital assets

Only ten of 36 STOXX^® Thematic indices outperformed the benchmark STOXX Global 1800 last month. The STOXX^® Global Silver Mining (+9.9%) showed the biggest gain, while the STOXX^® World AC NexGen Software Development (-5.4%) index led losses. 

The STOXX^® Digital Asset Blue Chip index, which aims to track high-quality assets that represent the crypto universe today, rose 9.2% in the month. 

Dividend strategies

Dividend strategies performed strongly in the month that ended. The STOXX^® Global Maximum Dividend 40 (+3.1% on a net basis) selects only the highest-dividend-yielding stocks. The STOXX^® Global Select Dividend 100 (+3.2%) tracks companies with sizeable dividends but also applies a quality filter such as a history of stable payments.

Minimum variance

Minimum variance strategies also had a strong month relative to benchmarks. The STOXX^® Global 1800 Minimum Variance gained 3.2% and the STOXX^® Global 1800 Minimum Variance Unconstrained climbed 4.3%. 

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 US dollars.
^[3] Figures in parentheses show last month’s gross returns.