Europe’s Stoxx 600 hits record high to join US, Japan equities

Europe’s benchmark index hit a record last Thursday, joining US and Japanese equities in reaching all-time highs, as an upbeat earnings report by Nvidia Corp cemented optimism about a boom in artificial intelligence.

The Stoxx Europe 600 Index closed 0.8% higher, surpassing the closing peak reached in January 2022. Technology stocks jumped, tracking a rally in the US tech-heavy Nasdaq 100 after the bullish sales forecast by Nvidia, the world’s most valuable chipmaker.

Auto and travel and leisure stocks also outperformed, while the food and beverage sectors lagged behind following a downbeat earnings report by Nestle SA. Investors also rotated out of retailers and defensive utilities.

Europe’s benchmark index has gained this year on bets of resilient global growth and potential interest rate cuts by the world’s most influential central banks. Still, investor positioning is getting stretched, with the Stoxx 600 nearing technical overbought levels, which some market participants consider a precursor to a selloff.

The risk from concentration has also grown, with just four stocks accounting for 65% of gains in the benchmark since the start of the year. Chip equipment maker ASML Holding NV, Danish drugmaker Novo Nordisk A/S, German software giant SAP SE and French luxury goods manufacturer LVMH have all seen double-digit gains in 2024.

Ulrich Urbahn, head of multi-asset strategy and research at Berenberg, said many investors had reduced risk exposure ahead of Nvidia’s earnings, but the bullish report is giving “sentiment a boost again.”

Urbahn also expects stocks to be supported by an improving economic outlook and stronger buybacks in the coming weeks. A broadening in the rally will drive a recovery in small caps “given encouraging macro data and stabilising yields,” the strategist said.