October brought the second monthly loss for the global equity markets in 2024. The index MSCI All-Country World Equity lost 2,3% during the month (in USD) – but still remains up by almost 15% for the year. The approaching US elections dominated investors’ thoughts in October. A potential area of uncertainty was the fact that the Presidential race was extremely tight, and investors were nervous that the final outcome might not be known for weeks. The two candidates have quite different views about certain policies, which potentially could have implications as radical shifts on inflation and interest rates directions. Exactly such fears of prolonged period of higher interest rates sparked investors’ concerns for future economic growth, despite all the signs of a strong US economy. The ongoing earnings season revealed that 3Q profits were broadly good, but future guidance from companies was bleak. Sector-wise globally, investors showed clear preference for risky stocks, furthering the so-far leaders: Technology, Communication Services and Financials had the strongest gains in October, while Materials and Real estate fell behind. Data from across the Atlantic showed that Europe continues to struggle to generate economic growth, with manufacturing suffering particularly badly. Some figures for still persistent inflation might limit ECB’s intention to further lower interest rates (which it did in October, by 0,25%). In the UK, the first budget under a new Labour government was announced, containing aggressive tax increases and borrowing to plug the financial hole – this sent the UK gilts’ yields higher by more than 60 basis points (bps) for the month (bond yields and prices move in opposite directions). In Asia, Chinese equities fell, while Japan was a notable outperformer. Last month’s optimism about China’s broad stimulus measures melted away, as the actual details disappointed – having risen by 21% in September (in local currency), the equity index SCI300 fell by more than 3% in October (and more than 6% in USD). The strengthening US dollar (which rose more than 3% against the EUR during the month, and 6% against the Japanese yen), exacerbated the returns of international stocks for US investors. Japanese markets rose modestly (in local currency), as exporters benefited from the declining yen, but any gains for investors from abroad were wiped out by the local currency depreciation. Fixed income markets also retreated in October. On aggregate, US bond yields moved nearly 50 bps higher during the month – as the yield curve steepened, the longer-term bond yields in the US hit their highest levels in 16 years.  In Europe, excluding Germany, government bond yields also rose to their highest in more than a decade. The Barclays Global Aggregate bond index returned -3.4%. Despite this increase in bond yields, gold prices advanced 3,4% (in USD) in October, and are now up more than 32% this year, while oil prices remained little changed regardless of the escalating conflict in the Middle Ease. 
      Stocks in the US finished lower in October, breaking a streak of five consecutive positive months; over the trailing twelve months, this was only the second negative result versus 10 gains! Share prices fell amid uncertainty ahead of the presidential election and souring expectations for the future interest rates cuts. All three major equity indices (Dow Jones, S&P500, and NASDAQ) ended the month with losses in the vicinity of 1%.  Disappointing earnings results from the Technology sector (including Apple, Meta, and Microsoft), also helped to push the US market to a loss at month-end. At sector level, Healthcare, Materials and Real estate fell the most in the month, while Communication services and Financials performed well. The 3Q reporting season began with solid results from some banks and pointed to a 7% on average increase in company earnings compared to a year earlier – confirming the strength of the US economy. Consumption remained high while exports continued to grow. The robust consumption was driven by consumer demand, supported by a strong labour market (which added more than expected (254k) jobs in September; unemployment fell to 4,1%). Data showed that lower energy prices drove down US inflation from 2.6% to 2.4% (less than expected), while core inflation stagnated at 3.3%. One point of concern was that core service prices (ex. shelter) accelerated again. The sticky core inflation demonstrates the difficulty facing the Fed, after its decision to cut rates by 50 bps in September – given the strong labor market and stubborn inflation, the market expectations for future rate cuts were seriously reconsidered. The Fed’s easing is still expected but at a much slower pace: investors now foresee only 2-3 quarter-of-a-percent rate cuts by the end of 2025, as opposed to 8-10 at the beginning of September. The cooling of rate cut expectations, alongside election uncertainty, led to a sell off of US Treasuries, and they returned in aggregate -2.4% for the month. In case of a Trump victory (slightly more likely at month end) investors anticipated the implementation of more inflationary policies, which pushed the yields of both the 2-year and 10-year notes above 4.0%.
        European shares also fell in October – the broad pan-European equity index Stoxx600 registered its largest monthly drop this year, losing 3,4% local currency (EUR). As Europe’s recovery is progressing at a much slower pace, the economic divergence between the euro area and the US is becoming more apparent. While inflation and the labor market are strong in the US, lower-than-expected inflation and disappointing economic indicators prompted ECB to lower by 25 bps its policy rate – its third such cut for this cycle. Data for September revealed that business confidence indicators weakened substantially for both the services and manufacturing sector. Germany was particularly affected, as continued declines in industrial and car production meant that manufacturing remained firmly in contractionary territory. With the Q3 earnings season ongoing, data shows weaker corporate earnings by -2% on average year-over-year. Quarterly updates from several of the carmakers as well as some luxury goods companies disappointed the market. The weakest performing sectors for the month included Information technology, Consumer staples and Real estate, while Industrials and Communication services were the only sectors to register a positive return. Euro area inflation declined from 2.2% to 1.7%, dropping below the 2% target for the first time since June 2021. The drop was (again) mainly caused by a sharp fall in energy prices, while food inflation inched up slightly. Core inflation (excluding food and energy) also softened from 2.8% to 2.7%. ECB expressed confidence in the disinflation process but reiterated that future interest rate moves will be data dependent. Despite the mild message and the fresh rate cut, European sovereign bonds were influenced by the global drop in fixed income markets, and returned -1% for the month. Worst on the continent was the performance of UK Gilts, which ended the month with a return of -2,8%, as a UK budget announcement scared investors with larger-than-expected spending planned for 2025.
       In line with the happening on the world stock exchanges, in October the Bulgarian stock market also declined.  For the third consecutive month, however, the good performance of the real estate stock index (BG REIT) continued, rising by 2.4%, while the flagship SOFIX and the broad BGBX40 indices fell by over 1%. The end of the month marked the 20th anniversary of the first successful IPO on the BSE – that of the company Investor.BG back in 2004. There were no new public offerings of shares or bonds during the month. Of the blue chip stocks on the local exchange, for the third month in a row the best performing company was Bulgaria Real Estate Fund REIT, which chalked up a rise of over 14% in October, while among those with the biggest drops was the technology company Sirma Group Holding AD, whose share price fell by 8.8%.
Source: Bloomberg.