European stocks ended a six-day winning streak on Tuesday, with Brent crude oil prices rebounding amid reports of renewed conflict between the U.S. and Iran in the Strait of Hormuz.
The Stoxx 600 index closed down 0.6%. Earlier, U.S. President Donald Trump stated that negotiations to end the U.S.-Iran war were "progressing well," but hours later, exchanges of fire between the two sides highlighted ongoing tensions. Additionally, Israeli Prime Minister Benjamin Netanyahu threatened to intensify strikes against Hezbollah in Lebanon. Following a sharp 7% drop on Monday, Brent crude oil rose on Tuesday.
The U.K. market reopened after a public holiday on Monday, moving higher alongside the S&P 500 index. While investors generally remain optimistic about the prospects for peace, most expect progress to be slow. The U.S. earlier launched strikes on Iranian missile bases, following reports that the U.S. Navy had resumed assisting vessels through the Strait of Hormuz.
"This could be the U.S.'s typical strategy of escalation followed by de-escalation," said Hassan Raza, a portfolio manager at CG Asset Management. "Current equity market levels are extremely fragile. Given Netanyahu's order last night for troops to escalate strikes against Lebanon, market optimism may soon fade."
Automotive, technology, and healthcare stocks were among the worst performers, while basic resources stocks outperformed, rising 1.4%.
Nokia was the top performer in the Stoxx 600 index, with its shares rising 5.9%, continuing to benefit from AI-driven rating adjustments.
Shares of BP PLC fell as much as 9.3%, marking their largest decline in nearly two months, after the company stated its board unanimously decided to dismiss Albert Manifold from his role as chairman, effective immediately. The company, which has a 0.8% weighting in the Stoxx 600 index, cited serious concerns regarding Manifold's governance standards, oversight, and conduct.
Ferrari closed down 8.4% after the company launched its first all-electric vehicle.
Marija Veitmane, head of equity research at State Street, stated that despite the recent rebound in European stocks, she remains bearish on the market. She noted that the earnings outlook "still faces significant challenges," and the firm's custody data shows that "selling pressure in Europe is the strongest" among the regions it tracks.
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