Global shares continued their fall for a third straight month – the MSCI World index dropped 3% (in USD) in October, driven by concerns that US interest rates may remain higher for longer, in view of the stubbornly high inflation. Investors were further worried about the geopolitical situation as the month began with the outbreak of war in the Middle East – through the October 7th attack by Hamas on Israeli civilians and soldiers. This immediately dampened investors’ risk appetite and volatility spiked. Preference for low-beta stocks caused stocks with strong balance sheets (low debt) to outperform for the month, especially in the United States.  Fixed income also fell just as equities, with bond yields rising sharply for the month - global bonds were down 1.2% over the month. Commodities outperformed, as the search for safe haven assets led to a rise in gold prices, while actually recessionary fears suppressed oil prices. Energy stocks were among the weakest performers, along with Industrials and Consumer Discretionary.  Utilities were more resilient; Consumer Staples also held up relatively well.
   US equities fell in October. The broad index S&P500 lost 2,2% (but still up 10.7% year to date), and the tech-heavy NASDAQ – almost 3%. Stocks suffered because investors’ expectations for the end of the Federal Reserve’s (Fed) tight monetary policy were pushed further out in the future. Maintaining the rates at their highest levels in 22 years, the Fed held its benchmark interest rate unchanged during the month (at 5,25%-5,50%). The central bank did not exclude further increases but acknowledged that “tighter financial conditions could weigh on the economy”. The broader US economy, however, remains robust for now: along with strong October jobs report and retail sales data, GDP in 3Q surprised with strong growth of 4,9% on an annualized basis (accelerating from the 2.1% in 2Q). The expansion was largely driven by strong consumer spending. Over the previous 12 months to September, inflation as measured by the consumer price index (CPI) came in at 3.7%  – unchanged on the previous month, while expectations were for a slight drop. Industrial activity also suggested expansion, as the latest purchasing managers’ index (PMI) hit a reading of 51.0 in October, up from 50.2 in September (a level over 50 means expansion). Third-quarter corporate earnings season has been a positive surprise so far, showing net profit growth rate of 2.8% (instead of the expected decline of 0.3% on average). This has been counterbalaned by weaker management guidance for the fourth quarter of ’23 and 2024 because higher interest rates could restrict consumer demand. All this contributed to the bad monthly performance of US stocks and bonds, because it meant that a more resilient economy might allow the Fed to hold interest rates at the current high levels for longer than previously expected by market participants. In this environment the US 30-year Treasury yield crossed above 5% for the first time since 2007, fueled also by concerns about the sustainability of government finances. The US yield curve remained inverted (sign, usually considered a harbinger of economic recession) The US 10-year Treasury yield increased to 4.91%, while the 2-year yield climbed from 5.05% to 5.10%. Higher yields make Fed’s work easier, as they contribute to the tight monetary policy conditions.
   Shares in Europe also declined. The pan-European index STOXX 600 lost 3.7% for the month amongst warnings from the European Central Bank (ECB) that higher-for-longer interest rates would be necessary to curb further core inflation. The Bank of England noted that labor shortages were fueling wage growth, sending the United Kingdom equities down more than 4%. Almost all sectors saw sharp declines, but Utilities and Consumer Staples posted small gains for the month. Healthcare was among the weakest performers after the European pharmaceutical giant Sanofi announced lower profit outlook for next year.  Data showed that the Еurozone economy contracted in Q3 – the composite PMI sank to 46,5 (the lowest in the last three years), revealing that the economic downturn is deepening: September’s reading was 47,2. With the higher interest rates weighing on the GDP growth, the ECB held interest rates unchanged at its October meeting, breaking a series of 10 consecutive increases. Inflation data did show a drop to 2.9% in October from 4.3% in September, which re-kindled hopes that the current rate-hiking cycle may be over.
   October also brought declines on the Bulgarian stock exchange, although not as deep as on the international markets. The flagship index, SOFIX, and the broad index, BGBX40, ended the month with a decline of about 1%, with SOFIX's rise since the beginning of the year still over 20%, two months before its end.  The young index, beamX, which measures the performance of companies in the junior segment of the BSE, the so-called beam-market, posted a positive return of over 1% for the first full month since its inception, but remains a little below its starting level. For the month, the best performer among Bulgarian companies was the stock of the Bulgarian Stock Exchange AD itself, whose price rose by more than 16%, and the worst - the manufacturer of boilers and radiators Korado Bulgaria AD, whose share fell by 8%.