European stocks extended their outperformance and broke through their previous closing record, driven by capital rotating out of artificial intelligence (AI) trades and a strong earnings season, according to ZhiTong Finance APP.
Data showed the Stoxx Europe 600 Index rose as much as 0.7% during Thursday's session, surpassing its August high, with mining stocks and consumer product shares leading the gains. The index had already climbed sharply on Wednesday as the outcome of the U.S. midterm elections ignited broad risk appetite across markets. Oil prices falling back below $100 per barrel also provided support.
"From a valuation standpoint, Europe is slightly below its historical average, so the record we're seeing today is tied to fundamentals and a fairly good earnings season," said Alexandre Baradez, chief market analyst at IG in Paris. "The macro environment and corporate earnings together are pushing the index to a record."
Heavyweight stocks including HSBC Holdings, Banco Santander and Rolls-Royce Holdings contributed the most to the index's gains. Since the start of October, this pan-European benchmark has outperformed the MSCI World Index and is on track for its best relative quarterly performance since the first quarter of 2025.
Europe is a beneficiary of the AI trade unwind, with investors pouring into defensive sectors such as healthcare and consumer staples. Companies have also delivered better-than-expected results this earnings season. Compiled data shows MSCI Europe index profit growth for the third quarter is expected to exceed 32%, the strongest showing since early 2022.
Next, market attention will turn to how the midterm election results affect the situation with Iran, tariff policy, and the possibility of changes in U.S. policy that could boost renewable energy and potentially weigh on the AI trade.
"European stocks are being lifted because the market is optimistic that a Democratic majority could reverse some of Trump's more damaging policies, such as tariffs and the withdrawal of support for Ukraine," said Wolf von Rotberg, equity strategist at Bank J Safra Sarasin. "That expectation is not unfounded, but Trump has enormous executive power, and whether it can be realized still depends on his willingness to cooperate."
The UK's FTSE 100 Index also rose as much as 0.9%, hitting a record high. The market is waiting for the Bank of England to announce its interest rate decision. Investors widely expect the central bank to raise rates by 25 basis points to 4%, the first hike in more than three years.
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