US Stocks Add to Gains in November as Europe Falters
Dr. Jan-Carl Plagge, Head of Applied Research
Global stock indices extended their record-breaking rally in November as gains in US equities offset a retreat in European shares.
The STOXX® Global 1800 Index added 2.2%1 in the month when measured in dollars amid ongoing optimism about the outlook for the economy and corporate earnings. The index touched its highest since data starts in 1991 and posted a 13th straight month of gains. It retreated 0.2% in euros after the common currency jumped 2.2%.
The STOXX® USA 900 Index rose 3% to a new record. The US benchmark has also posted a gain in each of the last 13 months.
The EURO STOXX 50® Index of blue-chip companies in the Eurozone lost 2.8% when measured in euros and the pan-European STOXX® Europe 600 Index fell 2%.
All major economies growing
Equities continue to attract flows amid signs that all major economies are growing in tandem. The STOXX Global 1800 Index has advanced 21% this year in dollar terms but has gained 7.1% in euros following a jump in the European currency.
From readings of gross domestic product growth, to purchasing managers’ surveys and corporate earnings, data has reflected an economic expansion that’s gathering pace.
US headed towards tax overhaul agreement
Following months of slow reform progress, both the US House of Representatives and Senate agreed between Nov. 16 and Dec. 2 on respective new tax bills. The proposals represent the largest rewrite of the American tax system in decades and will cut the corporation tax to as low as 20% from 35% currently. Lawmakers, who must now reach a compromise between the two proposals, aim to have a final bill before Christmas, according to reports.2
The STOXX® USA Total Market index was the best-performing national benchmark among 23 developed economies,3 climbing 3%. The STOXX® Denmark Total Market index came at the bottom with a 4% decline in the month. The Danish index was hurt by a 29% drop in Vestas Wind Systems A/S, after the world’s largest wind-turbine manufacturer lowered its profit guidance.
Siemens and Sanofi tumble
Political uncertainty may have dampened spirits towards European stocks. In Germany, Chancellor Angela Merkel has failed to secure a governing coalition following the hung parliament election results in September, and on Nov. 19 indicated that a new vote is a possibility amid the deadlock.
There was also corporate news behind some of the biggest stock declines in the month. Siemens AG tumbled 6.8% after the German energy-to-healthcare manufacturer said it will cut almost 7,000 jobs amid falling orders in the power generation industry.
Shares in Sanofi SA dropped 6.2% as the French drugmaker reported falling third-quarter earnings and warned of an “accelerated decline” of US diabetes sales in the fourth quarter.
Despite the decline in stocks, the EURO STOXX 50® Volatility Index, or VSTOXX®, stayed within close range from a record low during the month, suggesting investors have not significantly paid up for protection against a pullback in European shares. The VSTOXX indices track real-time options prices for the EURO STOXX 50, thus reflecting market expectations of future volatility. Trading in derivatives tied to the VSTOXX will end 2017 with record volumes.
Retail stocks get a boost from holiday sales
The STOXX® Global 1800 Retail index surged 6.9% in November to lead gains among 19 sectors.
U.S. retail sales between Thanksgiving Day and so-called Cyber Monday jumped to all-time highs this year, according to the National Retail Federation. Online sales hit a record-breaking $6.59 billion on Nov. 27, up almost 17% from the previous year, according to Adobe Analytics.4
The retail index beat the STOXX® Global 1800 Financial Services index, the second-best performer, by more than 3 percentage points.
At the other end, the STOXX® Global 1800 Basic Resources index was the worst performer, with a 0.1% advance.
STOXX® Global 1800 Index
EURO STOXX 50® Index
STOXX® Europe 600 Index
STOXX® USA 900 Index
EURO STOXX 50® Volatility Index
STOXX® Global 1800 Retail Index
1 All performance figures are net returns.
2 ‘Tax Overhaul Marked by Blinding Speed,’ WSJ, Dec. 4, 2017.
3 Net returns in local currency.
4 ‘Record-breaking Cyber Monday sales total $6.59 billion,’ ABC, Nov. 28, 2017.