(Bloomberg) — European stocks ended the day slightly higher, as reassuring results from LVMH and higher profit forecasts from Adidas AG offset a sharp decline in the technology sector.
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The Stoxx Europe 600 index pared earlier gains and rose 0.2% at the close in London. Luxury sector stocks including Hermes International, Burberry Group Plc and Richemont rose after LVMH results eased concerns about demand for luxury goods. Asos Plc jumped as it expects profits to rise in its next financial year as the online fashion retailer’s turnaround begins to take hold.
The technology sector fell 2.6% after ASML Holding NV’s orders missed estimates, reeling in other chip stocks such as ASM International NV and Aixtron SE. The sell-off in the sector was the biggest since July and comes after the Stoxx 600 technology index rose 25% over the past year, as ASML led the gains with a jump of more than 50%.
The April-October period will likely see increased volatility, due to the U.S. election and heightened geopolitical tensions expected to persist, said Mathieu Rachat, head of equity strategy at Julius Baer. Redemption nonetheless recommended staying invested and said “this will open up opportunities for investors to position themselves for the next cycle.”
Investors also continue to weigh the outlook for monetary policy, with expectations for a rate cut pushed back after a string of encouraging U.S. economic data in recent weeks. While Federal Reserve Chairman Jerome Powell noted Tuesday that it would likely take more time for officials to gain the confidence that price growth is heading toward the bank’s 2% target. Central Bank before reducing borrowing costs, Treasuries rebounded and restored a sense of calm.
With all eyes on earnings amid geopolitical tensions, volatility indicators have entered the worry zone for the first time since last year.
Geopolitical concerns have further dampened sentiment as Israel mulls its response to Iran’s missile and drone attack.
“The rise in risk aversion continues to rely on risky assets, which penalizes stock markets, while supporting the prices of the dollar and gold,” according to Daniel Varela, investment director at Piguet Galland & Cie SA. However, with investor confidence very low, stock markets could “gradually regain lost ground over the coming days, if political tensions ease somewhat”, he added.
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