European stock markets ended the US midterm election week only slightly higher, with banks and travel shares leading the gains and technology stocks falling sharply. The Stoxx 600 jumped 1.8% on Wednesday, then gave most of it back, ending Friday just 0.4% above Tuesday's close.

The Euro Stoxx 50, which tracks the euro area's 50 largest companies, followed the same path. It rose 2% on Wednesday and ended the week just 0.4% higher, as investors first cheered the Democrats' sweep of both chambers of the US Congress and then worried about what it would mean for technology regulation and defence spending.

Banks enjoy best week since June

European banks were the week's clear winners, rising 3.2% between Tuesday and Friday, with most of the gain coming on Wednesday alone. It was the sector's best week since June, according to 22V Research. The Euro STOXX banks index climbed 4.6% on Wednesday, its steepest one-day jump since early April, as investors rotated into domestically focused lenders that had lagged the broader market for much of the year.

The rally was broad. The pan-European Stoxx 600 ended Wednesday 1.82% higher at 657.40 points, its highest close since 26 August and its steepest one-day gain since 12 June. Spain's IBEX 35 climbed 3%, the most among regional bourses, while Germany's DAX rose 1.37% and France's CAC 40 gained 2.19% on the day.

Travel and clean energy climb as oil falls

Travel and leisure stocks did even better than the banks over the week, climbing 3.9% as oil prices fell, cutting fuel costs for airlines and holiday companies. Clean energy stocks also gained ground on hopes that US energy policy could turn back in their favour: wind turbine maker Vestas jumped 2.9%, Orsted gained 4.6% and Nordex surged 4.8% on Wednesday.

Company results added to the gains. Novo Nordisk advanced 5.6% after the Wegovy maker reported third-quarter operating profit above expectations and raised its full-year sales and profit forecasts. Heidelberg Materials rose 9.6% after reporting higher-than-expected sales, and jewellery maker Pandora gained 10.9% after posting a third-quarter earnings beat.

Tech slides on regulation fears

Technology was the week's big loser. European technology stocks fell 3.2% on Thursday alone, as investors weighed the likelihood of stricter Democratic oversight of artificial intelligence companies. Chipmakers were hit hard on Wednesday: Infineon, ASML and Soitec slipped between 3.4% and 11.8%, while AI equipment makers Siemens Energy and Schneider Electric shed 8% and 3.4% respectively.

Defence stocks were also under pressure. BAE Systems, Babcock and Germany's Rheinmetall all slumped amid expectations that the midterm outcome could lead to lower defence spending. The falls showed how quickly the market's reading of the election shifted from a broad relief rally to a sector-by-sector reassessment of winners and losers.

Friday rally fades

The week's early gains faded on Friday. The Euro Stoxx 50 and the Stoxx 600 both fell more than 1%, with Germany's DAX down 2.10%, France's CAC 40 down 0.80% and the UK's FTSE 100 down 1.10%. For the week as a whole, the CAC 40 still gained 2.30%, while the DAX lost 0.50% and the FTSE 100 lost 0.60%.

Markets opened the new week in calmer mood, with Asian shares rebounding and US equity futures edging higher after Wall Street ended Friday on a firmer note. Investors now face a heavy test: more technology earnings are due this week, and Tuesday brings the US consumer price report, the last major inflation reading before the Federal Reserve meets on 9 December.