Multinationals take the lead on the European stock market - October 6, 2025

European indices hit new records in early October, driven this time by major international stocks. The spread of the AI boom and clarifications on US trade policy served as catalysts, despite doubts about global valuations and October's poor reputation on the stock market.

Ignoring – for now – observers' nervousness about global stock market valuations and seasonality (October has a bad reputation), European stock indices reached new highs in early October (Chart 1).

Almost everyone tries to do so on a daily basis but explaining what causes markets to rise or fall remains a challenge. Bloomberg has an interesting model that attempts to quantify the contribution of five major factors impacting the Euro Stoxx: European and US economic growth, monetary policies in these two regions, and finally a factor of global risk appetite. In the very recent past, monetary policy and the European macroeconomy have emerged as the main drivers (Chart 2).

However, it should be noted that Bloomberg's model is not based on events such as economic statistics or ECB decisions, but on cross-correlations between five financial variables: the S&P 500, the Euro Stoxx, German long-term interest rates, the euro-dollar exchange rate and the long-term interest rate differential between Europe and the United States. Interpretation therefore remains tricky. The positive influence of the ‘US monetary policy’ factor fits well with the Fed's rate cuts since September. The ‘European monetary policy’ factor, which is also positive according to the model, can be linked to the change in tone of Ms Lagarde's comments, who appeared more flexible in her latest speech.

However, it is less obvious how to explain the favourable contribution of the European cycle, given the latest uninspiring economic statistics in the eurozone. This highlights the limitations of this type of model, which tends to interpret financial market movements as if stock indices primarily reflected local fundamentals. With the globalisation of companies, other macro and microeconomic interactions that are difficult to model come into play. This is what has happened in recent days, as shown by the sectoral dynamics of European stock markets (Chart 3).

After a difficult year so far, the European technology sector finally seems to be getting a boost from the spread of the AI boom to the entire global semiconductor sector, beyond Nvidia alone. As for the healthcare sector, which has been neglected by investors for several years, it is benefiting from clarification of US policy. The 30 September agreement between Pfizer and the US administration – which will be followed by others – reduces uncertainty about price cuts and customs duties on medicines. Automotive stocks, which are extremely undervalued, are benefiting both from better-than-expected sales (Stellantis, thanks to US sales) and the confirmation of the 15% customs duties provided for in the deal between the EU and the US. Luxury stocks have also recovered somewhat, supported by a stabilisation in exchange rates and hopes of a rebound in sales thanks to the wealth effect caused by the rise in US and Chinese stock markets.

After domestic stocks significantly outperformed since the announcement of the German budget plan, more international stocks are now gaining ground (Chart 4) thanks to AI, the ongoing clarification of US trade policy and other specific factors.

This momentum could continue in the short term if US trade policy proves to be more stable and predictable, at least with regard to Europe. These successive leadership rotations between global champions and domestic European companies reflect a new balance that makes the European stock market more attractive than it was before. Our European equity portfolios are now organised on this basis: a core basket dominated by multinationals, and more domestic thematic baskets, including financials and stocks exposed to the European economic recovery scenario.