European stock markets edged lower on Friday, pressured by widespread declines in banking shares and weaker-than-expected sales growth from L'Oreal Co., which weighed on the broader market.
The Stoxx Europe 600 index closed down 0.1%, though it still managed to notch a third consecutive weekly gain.
Shares of L'Oreal Co. fell 4.9% after the French cosmetics giant reported sales in North Asia that fell well short of expectations. HSBC Holdings dropped 2.2% and UniCredit declined 3.8%, leading the banking sector lower.
Benchmark stock indices in Hungary, Poland, and Greece underperformed, following a period over the past 12 months where they had outperformed other emerging markets. In contrast, technology and personal care stocks outperformed the broader market. Among them, Capgemini rose 5.1% after CEO Aiman Ezzat stated that the French IT firm is "clearly pivoting" to accelerate the adoption of artificial intelligence.
"European equities have had a strong run since the start of the year, and further upside is becoming increasingly difficult to achieve," said Wolf von Rotberg, equity strategist at Bank J Safra Sarasin. "Particularly for financial stocks, a positive catalyst is needed to extend the gains seen in recent months. However, bond markets are sending a different signal, beginning to price in a macro backdrop of moderate growth."
European stocks had hit record highs earlier in the week as economic growth showed resilience. However, concerns about the potentially disruptive impact of artificial intelligence have caused volatility across several sectors, from software and wealth management to transportation.
Markets are also focused on the earnings season. An index from Citigroup indicated that analysts have lowered their profit expectations for European companies this year.
"Uncertainty is likely to remain elevated in the near term," said Ulrich Urbahn, Head of Multi-Asset Strategy & Research at Berenberg. "However, we believe equities will rebound from current levels, driven by solid earnings, policy support, and stronger share buyback activity."
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