Global equities fell and volatility climbed as investors worried about a Democratic sweep of Congress and its implications for the artificial intelligence trade, erasing most of the week's gains for European stocks.
By the close, the Stoxx Europe 600 Index had dropped 1%. Even so, that decline was far smaller than the 4.4% slump in the S&P 500 on Thursday and the 6.4% plunge in the tech-heavy Nasdaq 100, which marked its worst single-day performance since March 2020. By the time European markets closed, those two US benchmarks were up about 0.9% and 1.9%, respectively.
On Friday, most European sectors moved lower, with travel and leisure the notable outlier that managed to post a gain. As US equity futures advanced, the Stoxx 600 pared its losses, even though solid US economic data reinforced speculation that the Federal Reserve will raise rates next month.
Global markets swung sharply this week as investors rushed out of the AI trade and rotated into more defensive assets. Guillermo Hernandez Sampere, head of trading at MPPM, said: "A reallocation of assets is to be expected, and high volatility may persist for a few more days, though the risk of a prolonged correction is not considered very high at this point."
Among individual movers, Teleperformance SE fell 15% after the company cut its full-year sales growth guidance. Glanbia Plc dropped 8.5% after Morgan Stanley downgraded the Irish nutrition products maker to underweight.
Joachim Klement, a strategist at Panmure Liberum, said: "The market is telling us that investors are already fatigued and that not many new buyers are entering the AI trade." He added: "That is clearly bearish for the technology sector and for the broader market."
Despite Friday's decline, European equities are emerging as one of the most attractive markets right now. Given the sharp swings in the technology sector, the region's stable industrial companies, banks, defensive blue-chip leaders and its large cohort of commodity firms are seen as appealing.
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