Values and sectors to take advantage of one of the largest rotations since the pandemic

European stock markets have seen significant sector rotation in recent weeks, one of the largest since 2020, according to Julius Baer and Morgan Stanley. This shift has been driven by investor risk aversion amid multiple pressures and a prolonged bull run. Julius Baer notes that since the start of Q4, European cyclical sectors have underperformed defensive sectors by 13.7%, the largest gap since March 2020.

Morgan Stanley highlights that investors have reduced exposure to economically sensitive sectors and increased it in defensive ones, with tech hardware and semiconductor stocks with high AI exposure down 25% from their June peak. The MSCI Europe software sector has recovered 80% of its losses since January.