#MarketingCommunication

October brought the timidly awaited Halloween rally – global equity markets rose more than 6% for the month. However, the rise was uneven, with wide differences across markets and sectors, driven by mixed economic news. The US and European markets were the strongest regions for the month with returns over 7% on average, contrasted by emerging Asia which declined. In China, in particular, the Hang Seng Index plunged by 15% for a second month in a row, mainly at the news that President Xi Jinping was elected for an unprecedented third term as the head of Chinese Communist Party.
In the US, new purchasing managers (PMI) data that came out in October confirmed that the economy is slowing down, despite that US GDP rose 2.6% in the third quarter. The previous two quarters GDP declined, which covered the technical definition of a recession. The US labor market, however, remains very resilient – the Non-farm newly created jobs again surprised positively and vacancies remain high. Inflation is yet to show signs of weakness - headline consumer price index continued to rise to 8.2% year-over-year, mainly due to strong services prices. This puts the Fed between a hammer and an anvil: the path to a soft landing is probably beyond reach now, as inflation is not abating. The latest Fed press conference was rather hawkish, and the Fed Chair, Jerome Powel, hinted that the terminal interest rate would end up higher, most likely peaking at 5.25% in mid-2023. The Fed assesses also the ‘overall’ monetary policy (incl. its QT or Quantitative Tightening actions), and the most recent mortgage rates levels that might stifle the housing market (currently the 30-year mortgage rate stands at 7.2%!). Without any signs of inflation softening, a Fed pivot seems not to be around the corner, and currently the markets are factoring another rate hike of 75bps in November, followed by a further 50bps in December. Meanwhile, the reporting season which lasted through October, showed that Q3 earnings of American companies were mixed: overall sales and earnings growth look good (year-over-year growth +11% and +3%, respectively), but are negative (-5%), if energy is excluded. Big tech is not immune from the global slowdown, impaired by the high USD and margin pressures by labor costs. Guidance for next year is clearly to the downside, and we expect that earnings will be further revised negatively in 2023.
In such setting the American equity indices had an impressive month. S&P500 added 8% to its value, and the industrial Dow Jones – almost 14%! The tech-heavy index NASDAQ rose by “just” 4%, as growth stocks fared worse than value and dividend ones. Energy stocks soared more than 18% in October, returning 33% for the year and exceeding broader markets by large margin. Industrial and healthcare stocks were also among the market leaders in October; communication services and consumer discretionary stocks continue to lag and are the weakest sectors in 2022 so far.
In Europe geopolitical risks remained the primary concern of investors, with tensions between Russia and Ukraine escalating further. The Eurozone PMI surveys also reached levels that point to a recession. However, there were some reasons for optimism. European equities benefitted from the election of a new Italian Prime Miniter – the first woman, Giorgia Meloni – who vowed fiscal prudence. In local currency the pan-european index STOXX600 added 6,3% to its value for the month. Supply chain constraints continued to ease, and European governments took further steps to moderate the impact of the soaring energy bills. With storage tanks full and autumn proving unseasonably warm so far, gas prices continued to move lower. While gas prices are down by about 60% since the peak in August, they remain much higher than the 2021 average. Despite the still difficult macro outlook, the European Central Bank (ECB) delivered another jumbo rate hike of 75 basis points at the end of October, matching the inflation-fighting actions of the US Fed.
The Bulgarian stock market ended the period flat, with all indices finishing the month without any significant change. This is in contrast with the strong gains witnessed on the developed markets, but in line with the fashion of low correlation between the local and international equity performance. Among the local companies, the best performer was the fertiliser producer Neochim AD, whose price rose by nearly 22% over the month, and the worst - the real estate investment company FairPlay Properties REIT, whose share price fell by almost 12%.