European equities closed Friday on a subdued note, as investors stepped back after a strong start to the year to reassess valuations, earnings prospects, and easing geopolitical risks.
The pan-European STOXX 600 ended the session flat at 614.38 points, capping a week that was marked more by consolidation than conviction, even as the index logged its fifth consecutive weekly gain — its longest winning streak since May 2025.
The muted close reflected a market searching for direction after scaling multiple record highs in recent sessions. Earlier gains had been driven largely by commodity-linked stocks, buoyed by spikes in oil and precious metals prices amid geopolitical tensions surrounding Iran and Venezuela. By Friday, however, some of those fears appeared to ease, triggering a pullback in mining stocks and removing a key source of momentum.
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Luxury stocks bore the brunt of the selling pressure. The sector fell 3.2%, recording its sharpest daily decline since early October, as concerns around valuations resurfaced. Richemont was among the heaviest laggards, sliding 5.4% after Bank of America Global Research downgraded the Swiss jewellery group to “neutral” from “buy,” urging investors to wait following a strong rally that had pushed valuations higher.
The selloff underscored lingering unease about the luxury sector’s growth outlook, particularly as wealthy consumers remain selective and demand signals from China continue to fluctuate.
Strategists say the pullback reflects a broader recalibration rather than a decisive shift in sentiment. Michael Field, chief European equity strategist at Morningstar, noted that while European equities are not excessively priced, the cushion that once gave investors confidence has largely evaporated. Markets, he said, are now less forgiving of disappointment.
Mining stocks dropped nearly 2% as commodity prices retreated, reversing some of the sector’s earlier gains. The decline came as geopolitical tensions that had pushed investors toward safe-haven assets earlier in the week showed signs of cooling. With risk premiums easing, traders appeared more willing to lock in profits.
Still, not all sectors struggled. Defense stocks rose about 1%, continuing to benefit from sustained government spending commitments and geopolitical uncertainty that, while calmer on the day, has not disappeared. Healthcare also offered support, led by Novo Nordisk, whose shares surged 6.5% after analysts described the early rollout of its weight-loss pill Wegovy as encouraging. Britain’s health regulator approved a higher dose of the drug for obesity patients, while Berenberg raised its price target on the stock, adding to the bullish momentum.
The broader market tone was also shaped by the opening phase of Europe’s earnings season, which has so far delivered a mixed picture. Updates from companies including Richemont, BP, and BE Semiconductor have highlighted uneven performance across sectors. Data compiled by LSEG shows fourth-quarter earnings are expected to fall 4.1% from a year earlier, with consumer cyclical companies among the hardest hit — a reminder that parts of the European economy remain under pressure.
HSBC shares dipped modestly after the bank said it was conducting a strategic review of its insurance business in Singapore, part of ongoing efforts to simplify its global operations. In contrast, Norway’s Kongsberg Gruppen stood out as the day’s top performer, jumping 9.5% after multiple brokerages lifted their price targets on the defense equipment maker, citing strong demand and improved earnings visibility.
Market participants largely framed Friday’s pause as a natural breather following a strong run. Richard Flax, chief investment officer at Moneyfarm, said investors were weighing solid fundamental reasons for optimism against a persistent layer of global uncertainty. After a robust start to the year, he said, some hesitation was inevitable as traders reassess risk.
Despite the day’s lack of direction, the broader picture remains one of resilience. The STOXX 600’s extended winning streak reflects continued confidence in Europe’s equity markets, even as investors grow more selective. With geopolitical developments, central bank policy expectations, and earnings guidance set to dominate the weeks ahead, markets appear to be shifting from broad-based optimism to a more cautious, stock-by-stock approach.