LONDON — European stock markets held near record highs on Friday, extending a broad-based rally as weaker-than-expected U.S. labor data eased concerns over additional near-term Federal Reserve policy tightening and encouraged investors to rotate into cyclical sectors.
The pan-European STOXX 600 index finished the week with its strongest performance since mid-May after reaching a record intraday high, while Germany's DAX also climbed to an all-time high. Financials, industrials, defense companies and other economically sensitive sectors led gains as investors responded to shifting expectations for U.S. interest rates.
Market sentiment improved after U.S. employment figures released on Thursday showed job growth slowed more sharply than economists had anticipated, prompting traders to reduce expectations that the Federal Reserve would raise interest rates in the near term. Lower anticipated borrowing costs generally support equity valuations by easing pressure on corporate financing and economic growth.
Trading activity was lighter than usual ahead of the U.S. Independence Day holiday, when American financial markets were closed, leaving European investors focused on domestic corporate developments and the implications of U.S. economic data for global monetary policy.
The rally broadened beyond technology shares, with industrial and banking stocks outperforming. Germany's Siemens gained after receiving a broker upgrade, while semiconductor-related companies including Aixtron, Soitec and BE Semiconductor also advanced. French employee benefits provider Pluxee rose after reporting a smaller-than-expected decline in sales.
The gains also came as recent euro zone inflation data reinforced expectations that price pressures continue to moderate, supporting the view that the European Central Bank can maintain a cautious approach to monetary policy. Analysts said lower valuations relative to U.S. equities have also increased the appeal of European shares for some investors.
Despite the positive momentum, some market strategists cautioned that much of the improving economic outlook may already be reflected in share prices. Analysts at Bank of America said valuations have become increasingly stretched, arguing that stronger economic growth alone may not provide sufficient support for further sustained gains and warning that enthusiasm surrounding artificial intelligence investment could moderate if expectations for future spending weaken.
Investors will next turn their attention to the release of Federal Reserve meeting minutes and additional economic data in the coming week for further signals on the outlook for U.S. monetary policy and its implications for global financial markets.
