Opinion Leaders
Stocks Weighed Down in August by Oil, Dollar
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Dr. Jan-Carl Plagge, Head of Applied Research
While earnings remain in an uptrend, investors turn focus to ongoing political tensions in the US and abroad.
Global stocks fell in August when measured in euros, weighed down by a decline in oil prices, a weakening dollar and geopolitical tensions. In dollar terms, they rose for a tenth consecutive month.
The STOXX® Global 1800 Index retreated 0.6%1 in the month. The benchmark climbed 0.2% in dollars. The EURO STOXX® 50 Index of companies in the Eurozone slid 0.7%. The pan-European STOXX® Europe 600 Index fell 0.8%.
The STOXX® USA 900 Index, measured in dollars, rose 0.2% to the highest since index data starts in 2001. The US benchmark has posted uninterrupted monthly gains since October.
Investors have bought equities this year amid signs of synchronized growth in the world’s major economies. Confidence in the outlook for corporate earnings took a back seat in August amid continued discontent with US President Trump’s political approach and threats of a nuclear attack by the North Korean regime.
Exchange rate continues to be a determinant driver of returns
The euro climbed 0.6% against the dollar in August, taking its advance in 2017 to 13%. Investors awaited an announcement from the European Central Bank on whether the policy authority will reduce its ongoing bond-purchasing program. Speculation of such a removal of stimulus is a key reason why the euro has strengthened this year, according to economists.
A weakening of the dollar this year has meant that equity gains differ widely depending on the currency base for a portfolio. The STOXX Global 1800 Index has advanced 0.9% in 2017 when measured in euros, but has surged 14% when accounted for in dollars.
Tropical storm Harvey causes damage
The STOXX® Global 1800 Oil & Gas Index led losses in August among 19 industries, after falling 4.3%.
Oil prices in New York dropped 5.9% to $47.23 a barrel. Analysts said the decline was in part due to lower energy demand in the US after tropical storm Harvey made landfall in Texas, causing seriously damaging floods and forcing evacuations.
The STOXX® Global 1800 Media Index and the STOXX® Global 1800 Banks Index followed as worst performers, with respective losses of 4.1% and 3%.
Mining industry leads gains
The best-performing industries during the month were the STOXX® Global 1800 Basic Resources Index, the STOXX® Global 1800 Technology Index and the STOXX® Global 1800 Utilities Index, with gains that ranged from 3.1% to 2.2%.
The yield on 10-year US Treasuries fell to 2.12%, the lowest since November, from 2.29% at the start of August. The yield on German bunds of equivalent duration slipped to 0.36% from 0.54%.
Israel falls, Denmark advances
The STOXX® Israel Total Market Index posted the biggest drop among all national indices compiled by STOXX, shedding 15%. The benchmark was dragged lower by a profit warning in its largest constituent, Teva Pharmaceuticals. Shares in the drugmaker lost half their value in August in Tel Aviv trading.
At the other end of performances, the STOXX® Denmark Total Market Index led gains after a 2.6% advance in the month.
Indices of the month – a new approach to value investing
STOXX continues to expand the iSTOXX MUTB smart-beta index family with Mitsubishi UFJ Trust and Banking Corporation (MUTB) of Japan, following the successful roll-out of the iSTOXX MUTB Quality indices.
This time they have jointly developed an innovative approach to value investing. The new indices are the iSTOXX® MUTB Japan Value 300, iSTOXX® MUTB Global Value 600 and iSTOXX® MUTB Global ex Japan Value 600.
The iSTOXX MUTB Value indices select companies from the STOXX® Global 1800 and the STOXX® Japan 600 indices based on a normalized value factor captured by three ratios: book to price, earnings to price and cash-flow from operations to price. A previous step screens out companies with high price and earnings volatility from the benchmark universe, to avoid so-called ‘value traps.’
Featured indices
STOXX® Global 1800 Index
EURO STOXX® 50 Index
STOXX® Europe 600 Index
iSTOXX® MUTB Japan Value 300
iSTOXX® MUTB Global Value 600
iSTOXX® MUTB Global ex Japan Value 600
1 Performance in euros, including net dividends, unless stated otherwise.
