The month of August continued the positive trajectory from previous months for the global equity markets. The MSCI All Country World Equity index posted a 2.4% advance (in USD), marking its fifth consecutive monthly gain. The rally was fueled by strong corporate earnings, resilient global economic activity, and the increasing anticipation of lower interest rates as inflation showed signs of moderating. In the US the S&P500 index reached record highs, closing above 6500 points for the first time. Investor sentiment remained optimistic despite festering geopolitical tensions and ongoing headlines about tariffs, the growing US budget deficit, and futile negotiations trying to end the war in Ukraine. Investors’ focus largely shifted toward central bank strategies and inflation dynamics. Data showed that the American economy grew by 3.3% in the second quarter and inflation held steady at 2.7%, coming in below consensus expectations. Impressively, the earnings season concluded with over 80% of US companies surpassing profit projections, revealing the underlying strength of corporate America. As a result, the big companies got bigger and market concentration intensified – currently the top 10 stocks in S&P500 represent nearly 40% of the whole index total weight. Developed market equities, especially in Europe and Japan, delivered notable performances, with Japan's indices setting new all-time highs and European markets continuing their strong run in 2025.  Some equity indexes from continental Europe also hit all-time highs. The Bank of England cut interest rates by 25 basis points, while ECB did not hold a meeting during the month. Corporate earnings, however, broadly disappointed as just 52% of European companies reported earnings above consensus, in sharp contrast to the results in the US. Meanwhile, emerging markets lagged behind but still achieved positive returns – India suffered badly from a new 50% US tariff, as President Trump aimed to discourage its purchasing of Russian oil. Among commodities, oil and gas prices fell, and the gold price continued to rise. Sector performance in August was mixed: Materials and Healthcare stocks led the way, while Information technology and Utilities underperformed. Investors clearly preferred risk during the month, as small caps beat the performance of large-cap companies. Global bond markets experienced diverse returns in August, influenced by shifting economic data and political events, including new US tariffs on various trading partners. The Bloomberg Global Aggregate bond index rose 1.5% (in USD), while investment grade credit spreads tightened in the US and Europe, driving a 1.2% gain in the Bloomberg Global Aggregate – Corporate bond index, largely due to strong second-quarter earnings and expectations of further Fed rate cuts. Emerging market debt also benefited from these US rate cut forecasts and a softer dollar, and in high yield markets, US corporate bonds outperformed European peers as robust earnings and macroeconomic figures boosted risk appetite, despite some weaker labor market signals in the US.
            In August, the US stock market experienced a gains across various indices. The flagship S&P500 equity index saw a good increase of 1.9% (in USD). The Dow Jones Industrial Average, which includes 30 prominent companies, also experienced a hefty gain of 3.3%. On the other hand, the Nasdaq Composite, which is heavily weighted towards technology stocks, faced the smallest (of the three indices) rise of less than 1.6%, due to concerns over rising interest rates and their impact on tech companies. The US economy is showing signs of slowing down, with a weakening labor market now taking precedence over inflation as the Federal Reserve’s main focus. Job openings are decreasing, layoffs are rising, and recent non-farm payrolls data point to a sharp slowdown in job creation – for the first time in the last five years there was a contraction on a monthly basis: instead of the expected 147k to be added for June, the actual was a negative revision of 13k fewer jobs. This forces the Fed to consider interest rate cuts—possibly beginning in September, with up to three cuts expected this year. However, inflation persists: the Fed’s preferred gauge for tracking inflation, the Personal Consumption Expenditures index, or PCE, showed that core inflation rose at a 2.9% annual rate in July, still high above Fed’s target of 2%. The delayed effects of higher tariffs could only add to the economic uncertainty, raising the risk of stagflation and casting doubt on the sustainability of consumer spending. Meanwhile, the US government relies on higher tariff revenues to help address a soaring budget deficit, which is at its highest ever outside of recessions. Concerns over long-term US debt sustainability, compounded by controversial interventions from President Trump involving the Fed and Bureau of Labor Statistics, are undermining investor confidence and further weakening the US dollar (which has lost 13% against the Euro since the start of the year). A revised report showed US GDP grew at an annual rate of 3.3% in the second quarter, higher than previous estimates. Thus, the Fed appeared ready to cut rates in response to labor market softening, despite the above-target inflation. Equity valuations remain elevated in the US, reflecting optimism (mainly AI), though ongoing risks — including political uncertainty, trade policy, and fiscal imbalances—could challenge this outlook in the months ahead. On the corporate side, Nvidia concluded the good earnings season by surpassing sales and profit expectations for the 2Q. However, while sales grew at over 50% year-on-year for the ninth straight quarter (!), uncertainties over US-China trade and a miss on data center revenues led to a sell-off in its shares subsequently. Tech stocks wobbled then. Overall corporate profits exceeded analysts’ muted forecasts, despite some sector-specific disappointments—most notably, Technology stocks underperformed due to concerns over AI investment returns and a disappointing academic report on generative AI projects. Small-cap US stocks outperformed large-caps in August, helped by resilient global activity and expectations of near-term Fed rate cuts. Real Estate Investment Trusts (REITs) also benefited, partly due to technology sector weakness. Materials was the best-performing sector, buoyed by progress in trade negotiations and increased manufacturing, while Healthcare also enjoyed a strong month. US Treasuries rose 0.9% over the month on aggregate, buoyed primarily by Fed Chair J. Powell’s Jackson Hole speech, which suggested a shift in economic risks following the inflation data and downward employment revisions. These factors led investors to expect a higher likelihood of a Fed rate cut in September and a slightly lower terminal rate, steepening the yield curve as short-term yields fell and long-term yields rose on concerns about the Fed’s independence. The 2-year US Treasury note finished the month with yield of 3.6%, while the 10-year stood at 4.25%. The disappointing jobs data led to a sharp yield declines early in August (bond prices and bond yields move in opposite directions). and markets increasingly priced in earlier rate cuts. While shorter-term Treasuries benefited from these developments and weaker-than-expected inflation, longer-dated bonds remained under pressure due to fiscal spending concerns and doubts over central bank independence.
            Stocks in Europe also registered mostly gains for the month, in euro terms. The continuing decline of the US dollar means that returns from American shares are hurt by the adverse FX movement for European investors. Overall, the pan-European equity index Stoxx600 finished August with a humble increase of 0.75% (in EUR). The top performing sectors included Energy and Consumer discretionary. Within the latter especially, automotive companies benefited from some relief that a tariff agreement with the US was reached in late July. The Industrials and Information technology sectors were among the main decliners. Information technology stocks suffered from the global weakness in the sector. Among Industrials, defence-related stocks declined amid some progress in security talks towards ending the war in Ukraine (although the meeting between the Presidents Putin and Trump in Alaska in mid-August proved largely futile).  The political uncertainty in France dominated headlines, as the French prime minister, François Bayrou, called a vote of no confidence in his minority government, scheduled for 8 September. This move followed his inability to secure parliamentary support for budget cuts, and the majority of French parliament pledging to vote against. The announcement triggered volatility in French markets, with the CAC40 index of leading French stocks falling 0.9% over the month. Given that French companies account a little less than a quarter of the Stoxx600 index by market cap, this decline weighed on overall European performance. The political turmoil heightened concerns about the stability of France’s government and its ability to address the country’s growing deficit. Despite these challenges, Eurozone economic data showed some vigor. The Eurozone composite purchasing managers’ index (PMI) improved to a flash reading of 51.1 in August from 50.9 in July, signaling expanding business activity as new orders returned to positive growth, particularly in manufacturing. Data for July showed strong loan growth in Europe, further supporting equities. Shares in the UK also posted small gains – the FTSE100 stock index rose 0.9% in August. British stocks however, underperformed relative to their continental peers amid persistent domestic challenges. Inflation remained stubbornly high at 3.8% in July,  coming in hotter than anticipated. The Bank of England (BoE) responded by cutting its policy rate by 25 basis points to 4.0%, but the decision revealed divisions within the Monetary Policy Committee, with four members voting for no change. despite signs of a weakening UK jobs market. On the markets for fixed income instruments, French government bonds underperformed due to political turmoil and concerns about fiscal discipline, with France’s large deficit standing out among European peers. In the broader Eurozone, bond yields rose modestly as growth and inflation data met expectations, and manufacturing showed recovery. UK Gilts saw yields increase, particularly long-dated bonds, after higher-than-expected inflation led investors to reduce expectations for Bank of England rate cuts. The BoE did cut rates to 4%, but the decision was not unanimous, suggesting a cautious approach to further cuts. Across Europe, government bond yields generally rose in August, driven by steady economic growth, stable inflation, and concerns about fiscal policy in both France and Germany.
           August was an excellent month for Bulgarian Stock Exchange investors. The representative SOFIX quity index maintained its trend of stability and registered a strong growth of 4% (in BGN) for the month. The broader BGBX40  also ended the month with growth, a little more than 2%, confirming the resilience of the broader representative sample of growing Bulgarian company stocks. Among the blue chips on the domestic bourse, the biggest drop for the month was the lead-acid battery producer Monbat AD, whose stock lost 9.5% of its market value. In contrast, the best performance was reported by the share of the Bulgarian Stock Exchange itself, which rose over 12%, supported by the improved prospects for the domestic market after the introduction of the euro. In August, BSE also paid a dividend to its shareholders of BGN 0.45 per share. Despite forecasts of a typical summer decline, trading volumes and the number of transactions concluded on the BSE remained close to July levels, while prices of the leading indices demonstrated resilience. The month confirmed the trend of gradually growing interest in our capital market, which should become much more accessible to foreign investors in euros after 1 January.
Source: Bloomberg, BSE