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Trump Rally Reignites in February on Brighter Economic Outlook

Mar. 15, 2017

Mar. 15, 2017

Global equities resumed their gains in February after faltering in the previous month when measured in euros, amid continued expectations for pro-growth policies in the US and reports showing faster manufacturing expansion.

The STOXX® Global 1800 Index rose 4.56% for the month1. The STOXX® Europe 600 Index added 3.10%, while the STOXX® USA 900 Index, measured in dollars, gained 3.82%.

Investors have snapped up equities since Donald Trump’s victory in the Nov. 8 elections amid expectations he will pursue reflationary and growth-friendly policies such as tax cuts and increased government spending. The Global 1800 Index has jumped 23.54% in the 12 months through February.

In his first speech to Congress, President Trump on Feb. 28 called for “unity and strength” while he pledged to spend on infrastructure projects and work towards stronger employment and production at home. 

Economic releases helped investor sentiment over the month. While fourth-quarter gross domestic product growth in the US came in slightly below economists’ expectations, a reading of manufacturing in the country released in February showed the pace of expansion in factories rose to a two-year high in January. Growth in the Eurozone’s business activity surged in February to its highest level in almost six years2.

Sector leader

The STOXX® Global 1800 Health Care Index climbed 7.72% in the month to lead gains among 19 sectors.

A pledge by Trump to reduce federal regulation and streamline the Food & Drug Administration approval process helped the pharmaceutical sector recover from earlier losses in the year, according to Dr. Jan-Carl Plagge, Head of Applied Research at STOXX Ltd. The industry was further underpinned by positive earnings releases for the fourth quarter, he added, with companies including GlaxoSmithKline and Allergan beating analysts’ estimates.

The STOXX® Global 1800 Personal & Household Goods Index and the STOXX® Global 1800 Technology Index followed as best-performing sectors, with respective advances in the month of 6.73% and 6.53%.

The STOXX® Global 1800 Basic Resources Index, on the other hand, was the worst performer with a 0.65% decline as some metals prices retreated. This was a relatively small setback for an index that has gained 61.07% in the past 12 months amid a recovery in metals and other commodities.   

US stocks extend advance

The STOXX USA 900 Index took its advance in the past 12 months to 24.74%.

“US stocks continued to climb as Donald Trump vowed to bring back millions of jobs to the US,” said Dr. Plagge. “Additionally, optimism over proposed market-friendly policies including tax cuts, deregulation and increase in infrastructure spending as well as upbeat earnings reports boosted investor sentiment.”

Index of the month

Despite concern about the upcoming national elections in the Netherlands, France and Germany, investors also poured money into European stocks. The STOXX Europe 600 Index climbed to the highest since April 2015 in February after rising 14.14% in the past year.

The STOXX Europe 600 has become, since its introduction in 1998, the benchmark of choice for global investors approaching Europe as the ever more integrated and homogenous economic bloc that it is. At PULSE ONLINE we published an insightful interview this month with Dr. Plagge – accessible here – that touches upon the nature and composition of the European index and recent investor interest around the benchmark.

 

1 All performance figures are net of dividends.

2 IHS Markit, Feb. 21, 2017.

 

 

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