European stocks are heading toward their widest gap from U.S. stocks since March

The Stoxx Europe 600 index is on track to post its strongest weekly gain relative to the U.S. S&P 500 since March. European stocks are showing this momentum amid positive corporate earnings reports, as well as a shift of investor funds from the artificial intelligence sector to other assets, according to Bloomberg.

The pan-European Stoxx Europe 600 index rose 0.5% on October 16 and 1.9% since the start of the week. The U.S. S&P 500 fell by just over 1% over the same period, closing up 0.33% on October 15. The European market is more focused on so-called value stocks, while the U.S. and Asian markets have more growth stocks, primarily in the technology sector, Bloomberg explains. Among other factors, this helped support European stocks last week amid a sell-off of AI stocks in the U.S. and Asia.

Media companies and automakers led the gains in the European market, while healthcare stocks were among the biggest underperformers. The German DAX stock index rose 1% on Friday (it has gained just over 2% over the past five sessions), the French CAC gained 0.17% over the day (and fell 1.86% over the week), and the Italian FTSE MIB index rose 0.76% on October 16 (and 0.05% over the week).

However, in addition to corporate earnings reports, investors remain focused on high energy prices—which have surged amid the war in the Middle East—as well as the prospect of tighter monetary policy by central banks, according to Bloomberg.

Overall, investor sentiment in both Europe and the U.S. has improved as expectations of a Fed rate hike in October have eased, Bloomberg notes. Speaking at the International Monetary Fund’s annual meetings in Bangkok, Fed Chair Kevin Warsh sidestepped the topic of monetary policy and his own forecasts for the U.S. economy. Market participants interpreted the absence of “hawkish” signals as a “dovish” message and scaled back their bets on a policy tightening at the Fed’s October 27–28 meeting. The CME’s FedWatch tool shows that traders currently estimate an 85% probability that rates will remain at their current level at the Fed’s October meeting (just a couple of days ago—following the release of September U.S. inflation data, which exceeded expectations—this probability was estimated at 50%).

"Economic data from the eurozone is supporting the markets, despite tensions caused by geopolitical risks and rising inflation. At the same time, attention is also focused on the bond market, as yields on government bonds in some eurozone countries may continue to rise, putting additional pressure on the currency and the European Central Bank,” said Guillermo Hernández Sampere, head of the trading department at the financial firm MPPM.

For stocks to continue rising through the end of the year, investors need to see interest rates and oil prices stabilize, and quarterly earnings reports from major tech companies will be key to maintaining confidence in the AI capital expenditure cycle, according to Barclays strategists led by Emmanuel Kau.

This article was AI-translated and verified by a human editor