European shares were down overall on a Friday, as nervousness about technology sector valuations and a sharp decline in defense stocks because of cautious signs of a diplomatic move in the Russia-Ukraine conflict weighed on the market.
The pan-European STOXX 600 moved down by 0.3% to 562.1, temporarily hitting its lowest level since late September and thus recording its steepest weekly drop since midsummer. The sentiment across the continent was that of a loss as traders decided not to add to their risk exposure before central-bank changes and geopolitical uncertainty.
Germany’s DAX was down by 0.8%, marking a six-month low, and Spain’s IBEX dropped 1%. Analysts insisted that such a decline was indicative of a worldwide shift away from growth stocks towards more defensive sectors of the market.
While U.S. tech stocks managed to regain some strength after being severely hit the previous day, their European counterparts went further down. The technology index in the area dropped 2.3%, its lowest level in two months, being weighed down by the decline in the three companies involved in chip-equipment ASML, ASM International, and BE Semiconductor, which individually declined between 4.6% and 6.3%.
“European markets were underwater from the opening bell,” commented Axel Rudolph, senior technical analyst at IG Group. “The problem of overvalued tech in the U.S. to a large extent was responsible for the downward European trend, and the volatility in the U.S. didn’t help.”
Investors in the U.S. have seen a pattern of severe fluctuations that are attributable to changes in the expectations of the Federal Reserve’s decision to cut interest rates in December. Late in the week, comments by U.S. policy-makers increased the probability of a rate cut, but the game of the share prices left the global market in a state of jitters.
AI-related industrial companies, which were among the best performers in Europe this year, are also losing their momentum. Schneider Electric dropped 2.7%, and Siemens Energy went down by 10.1%, reflecting what traders termed as profit-taking and tech-postive atmosphere sensitivity.
However, the most severe sector change came from the defense stocks that declined as the stories came up about a newly drafted U.S. proposal aimed at setting the stage for an end to Russia’s almost-four-year war in Ukraine. The one-page summary, which allegedly outlines reduction of the Ukrainian military and giving a large amount of land as the main terms of the deal, was quickly rejected by President Volodymyr Zelenskiy, who stated that he would never give up the core interests of Ukraine.
Regardless of whether the proposal gets support or not, the response was immediate: Europe’s defence index fell 3.4%, its lowest point since August. Renk shares declined 8.4%, whereas one of Europe’s leading defence manufacturers, Rheinmetall, lost 7.2%.
The rise of geopolitical concern drove the European volatility indicator to 24.5, its highest level in half a year, thus reflecting the increased anxiety of investors.
Cyclical sectors also had a bad day. Mining and industrial stocks each were down 1.3%, with Thyssenkrupp dropping 9.2% due to the continuation of worries over the global demand and the company-specific restructuring pressure.
Still, there wasn’t a downturn in every part of the market. Food and beverage companies—traditional safe havens during troubling times—were up 2.1%, and healthcare gained 0.8%, pointing to investors’ renewed appetite for defensive exposure. “It’s a classic risk-off rotation,” Rudolph explained. “Leaving tech, leaving cyclicals, and going into sectors that have more stable earnings.”
New UK figures brought the same cautious feeling. British retail sales took a nosedive in October, while the surveys indicated that consumer confidence was getting weaker and business activity was stagnating. However, the FTSE 100 still managed to make a small 0.1% upward move, which was possible because of its heavy concentration of defensive and commodity stocks.
The German ticketing and live-events operator CTS Eventim was one of the brightest spots of the day among the individual movers. Its shares went up 11.8% after the company reported strong third-quarter earnings, and the appointment of a new chief financial officer made investors confident with the long-term strategy.
Traders believe that European markets will most probably continue to be volatile due to the impending central-bank decisions and the changing nature of geopolitical tensions. Currently, the main story is very much visible: investors are moving to safety as the year-end is getting nearer, and tech companies in the region that have been performing well are the ones that are losing the most.