By Joe Stonor
European stocks started April in the green as traders looked to dust off what was the worst month for European equities since the Covid-19 pandemic.
Blue-chip indexes notched a string of record highs in the first few months of this year. But U.S. and Israeli strikes against Iran at the end of February sparked a stagflation shock and caused panicked investors to retreat from risk.
The Europe-wide Stoxx 600 index broke an eight-month winning streak to fall 8% in March, its sharpest monthly decline since March 2020.
Indexes in Germany, France, the U.K. and elsewhere dipped into correction territory in March as surging oil and gas prices roiled energy-sensitive stocks in particular, but also led to growth fears across the economy.
"We saw a lot of indiscriminate risk-off selling in European equities last month," Interactive Investor's head of investment, Victoria Scholar, said.
Though central banks on the continent left interest rates steady last month, both European Central Bank and Bank of England signaled willingness to raise rates in order to tame conflict-induced inflation.
Real estate stocks tumbled in response, falling close to 15% for the month, while fears of slower growth helped a gauge of European banking stocks to fall 11%.
Germany's DAX--which is heavily weighted toward energy-intensive industrial stocks--fell over 10% in March. It was the index's sharpest fall since June 2022.
Manufacturing groups like Siemens--down 17% for the month--and weapons-maker Rheinmetall--down 13%--suffered as the effective closure of the Strait of Hormuz caused energy costs to soar.
London's FTSE 100 was down 6.7% for the month, while the CAC 40 tumbled 8.9% in Paris. Both indexes suffered their worst months since March 2020.
French stock investors were hit by the war's outsized impact on luxury stocks, which tumbled 14% in March. Louis Vuitton-owner LVMH--the index's most valuable company--fell 15% as investors bet slower growth would lead to consumers cutting back on spending.
Not every sector sold off, however. A basket of energy stocks was close to 15% higher over the month as oil majors like BP and Shell benefited from surging oil prices.
Navigating a market driven by a steady drum beat of often conflicting headlines was a challenge for investors, UBS banking analyst Ignacio Cerezo said.
"It's been incredibly difficult. You don't have the minimum information required to take a view," the analyst said.
Stocks are up across the continent Wednesday, with the Stoxx 600 rallying 2.4% as U.S. and Iranian leaders both signaled a willingness to de-escalate.
If Middle East peace hopes are realized, traders' attention will turn to how quickly markets can recover from the shock.
Recovery will likely be quicker in peripheral European economies like Ireland and the Nordics, given their more service-heavy economies compared to their central European neighbors, Cerezo said.
Write to Joe Stonor at josephmichael.stonor@wsj.com
(END) Dow Jones Newswires
April 01, 2026 08:09 ET (12:09 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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