Stocks Rise in Europe After US Tech Rally Lifts Sentiment: A Market Overview

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Stocks Rise in Europe After US Tech Rally Lifts Sentiment – European markets followed the positive lead from Asia and the US, as investor sentiment improved following a strong rally in Wall Street’s tech sector. With key markets across Europe mostly closed for the holiday season, the Stoxx 600 index rose modestly by around 0.2%. The rise came after US stock indices, especially driven by mega cap tech companies, pushed higher in the final days of the trading year. Despite the festive period leading to light volumes in the market, the rally in US stocks provided some optimism for investors looking at global markets.

This rally in US tech stocks has been impressive, with the S&P 500 set to finish the year with an extraordinary return, continuing the trend of back-to-back annual gains of over 20%. It has gained roughly 25% since the end of 2023. This surge has been led by the top seven technology stocks, which alone have contributed more than half of the overall market’s rise. Meanwhile, European markets have been lagging, affected by sluggish economic growth and ongoing political challenges in key nations like France and Germany. Here’s a detailed look at how the markets performed, the reasons behind the rally, and what it means for the year ahead.

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Stocks Rise in Europe After US Tech Rally Lifts Sentiment: The European Market Performance

European stocks have been struggling for much of the year. Despite some positive momentum at the start of 2024, many markets have failed to keep pace with the impressive gains seen in the US. As of now, the Stoxx 600 index, which tracks the performance of the largest listed companies in Europe, is heading for its biggest quarterly loss in two years, having dropped over 4% since its peak in September. The ongoing political turmoil in countries like France and Germany, combined with weaker-than-expected economic growth across the region, has contributed to the underperformance.

However, the latest rally in US stocks has helped boost sentiment in Europe as well. Despite the Stoxx 600 index’s challenges, it managed to edge higher, by a modest 0.2%. Notably, the French CAC 40 index saw a stronger performance, partly driven by comments from Prime Minister François Bayrou. Bayrou announced plans to reduce the country’s budget deficit to near 5%, a move that reassured investors about France’s fiscal stability.

Overall, Europe’s economic outlook remains mixed. The region has been grappling with slow growth, with inflationary pressures still affecting households and businesses. Yet, the optimism from the US tech rally and some improvement in the stock market may provide a brief respite to European investors.

Stocks Rise in Europe After US Tech Rally Lifts Sentiment: Wall Street’s Tech-Fueled Surge

The real story of the market’s rise in the last few days has been Wall Street’s exceptional rally, especially in the tech sector. The S&P 500 index, which tracks the 500 largest companies in the US, has risen by about 25% since the end of 2023, setting it on course for a stellar annual return. This marks another year of impressive growth, following a 20%+ gain in 2023. The performance of the S&P 500 has been mainly driven by the top seven largest technology stocks, including companies like Apple, Microsoft, and Nvidia, which alone have accounted for over half of the market’s total gains in 2024.

Alberto Tocchio, a portfolio manager at Kairos Partners, commented on the strength of the US market, saying, “The reality is that US growth has surprised everybody as it’s been very resilient.” The recent rally in the tech sector has shown that despite concerns over inflation, higher interest rates, and other macroeconomic factors, the US economy has managed to stay resilient, especially in sectors such as technology.

Market breadth, which refers to how broadly stocks are rising, has improved in the latter part of the year. While earlier in 2024, the rally was driven mostly by tech giants, the market has seen more sectors participate in the gains, which adds to the optimism surrounding the broader economy.

Stocks Rise in Europe After US Tech Rally Lifts Sentiment: Challenges in Asia and Europe

While the US has seen remarkable growth in tech, European and Asian markets have struggled to keep pace. In Asia, sentiment has been more mixed, with regional concerns affecting investor confidence. Asian stock markets have faced difficulties, including fears of rising global tariffs, particularly those threatened by the incoming US president, Donald Trump. Additionally, the strength of the US dollar and China’s weaker-than-expected economic recovery have contributed to a souring of market sentiment.

In particular, the MSCI Asian equity benchmark is on track for its first quarterly loss since September 2023, down 6.8% over the period. By contrast, the S&P 500 has gained about 3.7% in the same timeframe. Key Asian markets such as Mainland China and Hong Kong saw positive performance, with shares in both regions among the best performers, though Japan’s market saw more mixed results.

The challenging macroeconomic environment has made it difficult for Asian stocks to follow the rally seen in the US. Concerns over the ongoing trade tensions, the US-China relationship, and the global economic slowdown have all played a part in creating a more cautious outlook in the region.

Stocks Rise in Europe After US Tech Rally Lifts Sentiment: Specific Stock Movements in Europe

While the broader European market has remained subdued, some individual stocks have experienced significant moves. Among the most notable was Vistry Group Plc, a UK-based homebuilder, which saw its stock price plummet as much as 20%. The company issued its third earnings warning in just three months, causing a sharp decline in investor confidence. Vistry’s struggles reflect the broader challenges faced by the UK housing market, which has been affected by higher mortgage rates and weak consumer confidence.

In other news, French company Renault also faced market turbulence, with shares slipping on concerns about its profitability. However, some European companies have benefited from the positive sentiment, particularly in the tech sector. Companies such as ASML, a leading semiconductor equipment maker in the Netherlands, have seen a boost in their stock prices thanks to strong demand for tech products globally.

Stocks Rise in Europe After US Tech Rally Lifts Sentiment: The Outlook for 2025

As we approach the end of 2024, all eyes are on the outlook for the next year. European stocks, which have underperformed this year, are facing a challenging economic backdrop as they look ahead to 2025. The region is dealing with political instability in key countries, such as France and Germany, while inflation and slow economic growth remain persistent concerns.

In contrast, the US economy has surprised many, thanks to strong growth in sectors such as technology. The resilience of the US economy has been one of the key drivers of global market sentiment, even as other regions face difficulties. As we enter 2025, the question remains whether European stocks can catch up to the performance seen in the US or if the region will continue to lag behind.

Alberto Tocchio, the portfolio manager, highlighted that “unfortunately Europe is closing very downbeat as it still struggles to get some growth.” Despite this, there remains hope that the global economy, including Europe, may experience a rebound in the coming months, particularly if inflationary pressures ease and growth picks up.

Oil, Gold, and Currency Movements

In the commodities and currency markets, the sentiment has been more cautious. Oil prices climbed in subdued trading ahead of the holidays, recovering somewhat after a three-day selloff. The market’s focus remains on global politics, particularly with President-elect Donald Trump’s international trade policies and their impact on oil prices.

In the currency market, the US dollar showed a modest rise as investor confidence in the dollar remained relatively strong. The Japanese yen fluctuated, with volumes lower than usual due to the holiday period. Japan’s finance minister, Katsunobu Kato, warned about excessive foreign-exchange fluctuations, signaling that the country would intervene if necessary to stabilize the yen.

Meanwhile, gold prices edged slightly higher as investors sought safety in the precious metal amid global uncertainties. As the year draws to a close, market participants are keeping an eye on how the currency and commodity markets will perform in 2025.

A Global Overview

As 2024 draws to a close, the global market landscape remains mixed. On the one hand, US stocks have been boosted by a strong rally in tech stocks, with the S&P 500 set for its best annual performance in years. On the other hand, European markets have struggled due to a lack of growth and political instability. Asian markets have faced headwinds from trade tensions and currency volatility, making it a challenging year for investors in the region.

Despite the challenges in some regions, the broader global market outlook remains cautiously optimistic. The US economy has shown resilience, and if Europe can overcome its political and economic challenges, it may see stronger growth in the coming year. For now, Stocks Rise in Europe After US Tech Rally Lifts Sentiment, and the global market is positioning itself for the next chapter in 2025.

NEWS BY BLOOMBERG