Tech selloff, defence weakness weigh on European shares

Technology stocks experienced a significant 3.2% decline, marking their lowest level in nearly two months. This downturn affected the European benchmark stock index as investors weighed the outlook for the sector following a Democratic victory in the US midterm elections. The Stoxx 600 index closed 0.38% lower at 654.87 points, having retreated from its near-all-time high earlier in the day. Paris and Madrid's stock markets, however, saw mixed performances with French and Spanish benchmarks ending higher.

The decline in technology stocks mirrored losses on Wall Street, where the tech-heavy Nasdaq confirmed a correction. Among the most significant decliners within the Stoxx 600 were chip-linked stocks. Soitec plummeted 16.7%, Infineon fell 8.5%, and Aixtron declined by 9.8%. ASML, an AI heavyweight, saw a 6.6% retreat, while Siltronic experienced a 12.3% drop.

Senior analyst Ipek Ozkardeskaya of Swissquote Bank attributed the shift in investor sentiment to a rotation from technology to non-technology sectors and from the US to non-US markets. Concerns about heightened scrutiny on data center expansion and its potential impact on AI spending added to the uncertainty. Despite these concerns, existing orders were deemed unlikely to be negatively affected.

Defence stocks also suffered a 2.6% decline, with Rheinmetall leading the decline at 16.1% after the company revised its 2026 sales forecast for the second consecutive time in three months. Following the US midterm election results, high expectations were set for a potential acceleration in Iran conflict resolution, and Democrats' focus on fiscal spending and policies targeting specific sectors such as European banks and clean energy.

However, Brent crude oil prices surged over 2% as investors contemplated the future trajectory of the Iran war, further unsettling European markets. Stocks for Air France-KLM surged 12% after surpassing third-quarter earnings expectations, while renewable energy firm Orsted climbed 3.5% following robust results. Conversely, Aker BP fell 5.6% after BP sold a 5% stake in the Norwegian energy company.

In the UK, the Bank of England raised interest rates for the first time in over three years, signaling further rate hikes if the Iran-Iraq conflict persists. The FTSE 100 index of leading UK shares closed 0.43% lower.