#MarketingCommunication

After a strong beginning in January, global equities declined in February. Broader indices fell more than 2,5% for the month (for example, MSCI World). Better-than-expected economic data that came out during the month improved the market participants’ near-term economic outlook but this affected shares negatively. Investors mainly worried that such economic resilience meant that rates would need to remain higher for longer in order to bring inflation back towards target. Bonds struggled as a result. The global aggregate bond index registered a 3.3% decline for the month, reversing much of the positive return achieved in January.  Equity markets also shed blood, as hopes of a rate-cut-fueled rally disappeared. Indeed, the European Central Bank (ECB), Bank of England and Federal Reserve (the Fed) all announced rate hikes at the start of the month, in line with expectations. The message from the accompanying statements was that despite the recent decline, inflation remains too high and the central banks’ job is not done yet. Thus, while strong economic data usually supports stocks, equity markets had clearly been looking forward to potential rate cuts and so were more disappointed at the prospect of less monetary easing in the near future than they were cheered by the prospect of a delayed recession.
In the US equities declined during February. At the beginning of the month, the Fed voted unanimously to raise rates by 25 basis points (bps) to 4.75%. Later in the month, Fed Chairman Jay Powell stated that policy intervention was starting to work on curbing inflation, but that the process of disinflation is expected to have a long way to go – and further rate hikes are likely needed, especially if macro data continue to come in stronger than expected. Thus, almost all sectors of the S&P 500 ended weaker. Technology was comparatively resilient. Chipmaker Nvidia was a notable performer having posted strong results and announced greater involvement in artificial intelligence. Energy was amongst the weakest sectors with investors seeing potential cost pressures.
In Europe gas prices continued their decline to EUR 50 per megawatt hour (down 40% year to date and 84% below last year’s peak) as gas storage levels remained very high, despite the lack of Russian gas supply. The lower cost of energy is driving an improvement in consumer and business confidence and has helped support the outperformance of European stocks.  Despite the decline in headline inflation, driven by lower energy prices, the ECB raised interest rates by 50bps to 2.5% in February, confirming the intention to “stay the course of increasing interest rates steadily, and keeping them at levels that will ensure a timely return of inflation to the 2% target”. ECB president Christine Lagarde expressed explicitly the intention to increase rates by another 50bps in March.  Another reason why Eurozone shares gained in the month is the reemergence of China after the lifting of zero-COVID policies and their consumer demand for cars and luxury goods from Europe. Positive interest rates in Europe have also started to benefit the financial sector. So, the top performing sectors during the month included communication services, financials, and consumer staples, while real estate, IT and healthcare posted negative monthly returns. 
February was also a good month for the stocks in Bulgaria. Along with most results on the Old continent, the domestic indices recorded a second month with positive returns since the beginning of the year. During the month, trading began in shares on the BEAM market of the newest member, electrical components company Elmark Invest EAD, which raised over BGN 4.5 million from its initial public offering. In February, among the local companies, the best performer was pharmaceutical producer Sopharma AD, whose share price rose by nearly 18%, and the worst performer was energy company Exploration and Production of Oil and Gas AD, whose share price fell by over 22%.