Europe: Shares snap 4-week rally as higher oil prices temper strong earnings

European stocks tumbled on Friday (Aug 14), ending a four-week winning streak, as crude oil prices surged and geopolitical tensions rose, counteracting gains from strong earnings. The Stoxx 600 index closed 0.2% lower at 657.86, marking a 0.3% decline over the week, though it remained only 1% away from a record high. This 3% rally over four weeks was fueled by better-than-expected second-quarter earnings, which saw aggregate earnings for the Stoxx 600 forecast to rise by 23.4%, the largest increase in nearly four years due to strong profits in energy and materials sectors.

Analyst Michael Hewson from iForex noted that companies have improved business efficiencies and adapted to rising costs, while consumers stayed resilient despite higher energy costs. European equities have been gaining favor among global investors due to their lower tech exposure, as they diversify portfolios away from AI stocks.

Economic data showed the region grew 0.4% in Q2 from the previous quarter, aligning with market expectations. However, the ongoing tensions between Iran and the US over the Strait of Hormuz are expected to keep oil prices above pre-conflict levels, introducing uncertainty for corporate performance and the broader economy. Healthcare and defense sectors suffered the most, with a 1.5% and 1.2% drop respectively, while Maersk saw an 8.7% surge, reaching its highest level in four years.