Europe's benchmark STOXX 600 climbed to a record high on Thursday 12 November, boosted by strong corporate earnings, easing geopolitical tensions and investor rotation away from AI-linked stocks in Asia and the United States.

The pan-European index gained 0.4% to 665.61 points by 0926 GMT, after closing at record levels in the previous session, and finished the day 0.14% higher. Germany's DAX climbed 0.41% at the close, France's CAC 40 gained 0.34% and Switzerland's SMI closed up 0.63%, after the DAX had risen 1.1% to a new high during the session.

Earnings power the rally

Stocks have been buoyed in recent weeks by strong corporate earnings despite inflation and interest-rate hike concerns, while oil prices slipping below $100 a barrel on easing US-Iran tensions further aided sentiment. STOXX 600 companies are on track to post quarterly profit growth of 25%, the strongest in four years, according to LSEG data, with energy firms providing a major boost.

Siemens rose 4.4% after the industrial technology group raised its growth projection, while drugmaker Merck gained 2.5% after increasing its 2026 profit forecast for a third time this year. Siemens later moved up nearly 5% after raising its medium-term targets following better-than-expected fourth-quarter results.

Munich Re climbed 3.2% on stronger-than-expected third-quarter results. The reinsurer reported third-quarter net income of 1.74 billion euros, compared with 2.00 billion euros a year ago, while its net result for the nine-month period rose to 5.67 billion euros from 5.18 billion euros. Allianz advanced almost 2%, lifted by better-than-expected third-quarter earnings and an upward revision to its full-year earnings outlook, raising the upper end of its fiscal 2026 operating profit target range to around 18.6 billion euros from its previous view of 17.4 billion euros, plus or minus 1 billion euros. For the nine-month period, Allianz recorded an operating profit of 14.1 billion euros, higher than the prior year's 13.1 billion euros.

Investors rotate away from AI stocks

Europe's smaller exposure to AI-linked stocks has supported its outperformance versus Asian and US peers, as investors increasingly question the sustainability of the AI trade amid stretched valuations, debt-funded spending and the prospect of greater legislative scrutiny following the Democrats' midterm electoral sweep.

Mark Preskett, senior portfolio manager at Morningstar Wealth Europe, said Donald Trump's statement and the idea that an escalation is less likely in Iran had been a key driver of a rebound in risk sentiment across the globe, but particularly in Europe, adding that the earnings resilience had been a surprise to many.

He said the European market is home to a different set of companies, with greater exposure to consumer-facing businesses, industrials and financials, and that this had driven outperformance during a period when technology stocks had taken a bath.

The STOXX 600 has risen nearly 5% so far this quarter, while the S&P 500 is down 0.4%. Societe Generale analysts said 13 of the benchmark's 20 sectors have outperformed the index since the midterm elections. Investors have instead taken a liking to defensives, with European healthcare and consumer-related sectors such as food and beverage, travel and leisure and retail reporting double-digit gains this quarter.

Not every sector shared the gains

However, not all sectors have shared in the rally. Luxury stocks and autos have been among the index's biggest laggards, down more than 16% each this year. The luxury sector has been grappling with weakening demand in key market China, while automakers such as Volkswagen and Volvo have seen some of the biggest hits to earnings this quarter on rising competition from Chinese electric-vehicle makers.

In Thursday's trading, carmakers were among the weakest. Stellantis dropped more than 4% and Renault drifted lower by nearly 3% in Paris, while in Germany, Gea Group tumbled 4.7% after announcing a change in leadership, and Rheinmetall, Fresenius Medical Care, Brenntag, Porsche Automobil Holding and Volkswagen lost between 2% and 2.8%.

Concerns also prevail about higher government debt in countries such as France and Italy ahead of pivotal elections next year, which could test the resilience of European equities' record-breaking run. For now, though, the combination of strong earnings, easing Middle East tensions and rotation into defensives has left Europe's markets at record highs while US stocks struggle.

Sources: TradingView (dpa-AFX) and Reuters via KWSN