European stocks advanced on Wednesday, moving close to the record high set in August, after Democrats won control of both chambers of Congress in the U.S. midterm elections. Banks, luxury goods and renewable energy shares led the gains. The Stoxx Europe 600 index closed up 1.8%, its biggest gain since June, and was just 0.5% short of its all-time high. Sectors that had been pressured by pre-election risk aversion became the main drivers of the rally. Bank shares posted their largest gain since April, while a basket of European luxury stocks compiled by Goldman Sachs recorded its biggest rise since May.
The market viewed a sweeping Democratic victory as beneficial for clean energy companies, and renewable energy shares also stood out. Wind farm operator Orsted A/S rose 4.6%, while Vestas Wind Systems A/S gained 2.9%. Defense stocks lagged, as investors reduced bets on European military spending with Democrats about to take control of Congress. Michael Field, chief equity strategist at Morningstar, said, "For us European investors, the U.S. midterm elections and presidential elections are becoming more important than ever. With Congress and the president now from different parties, any major measures in the future should be constrained, and I think that is ultimately good for the economy and for companies."
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