Risk-off mood sweeps European stocks as AI concerns deepen

European shares fell 1% on Friday, with insurance stocks leading a broad-based selloff as investors weighed the outlook for AI stocks following a Democratic sweep of the US Congress.

The pan-European STOXX 600 index closed at 648.33 points, with the German benchmark underperforming other regional bourses with a 1.9% decline.

"There is definitely a spillover effect from what we saw in the US yesterday, and that deterioration in sentiment has now also spread to Europe," said Ruben Dalfovo, an investment strategist at Saxo Bank.

"There is an element of the market selling first and asking questions later. In terms of the fundamentals of the companies, nothing has really changed, but the sentiment in the market has massively deteriorated."

The insurance sector fell 2.6%, dragged down by a JPMorgan downgrade of German reinsurers. Hannover Re and Munich Re were down 4.3% and 4.4%, respectively, while Swiss Re fell 4.6% despite reporting a rise in net profit.

Tech stocks edged 0.2% lower, extending Thursday's decline. Fears that a Democrat-led Congress could seek curbs on AI data-centre spending added to concerns over weak returns, lofty valuations and debt-fueled investment.

Overall, the STOXX 600 was relatively less impacted than Asian and Wall Street indexes, given its lighter exposure to AI stocks, and eked out a small weekly advance.

Still, the cautious sentiment saw even traditional safe-haven sectors retreat on Friday, with media shares down 2.3% and personal & household goods down 1.9%.

Teleperformance was the biggest individual faller, slumping 15.3% after cutting its full-year revenue growth outlook as weakness in the outsourcing firm's trust and safety business more than offset growth in its AI-powered and back-office services.

Clean energy stocks were buoyed by expectations that the Democratic sweep would see support for renewable energy return, while robust earnings also helped underpin the market.

"Lower political uncertainty could make it easier to get permits, and we all need energy," Saxo Bank's Dalfovo said.

Orsted and Nordex rose 1.2% and 5%, respectively, while EDP inched higher after raising its full-year recurring net profit guidance for the third time this year.

Travel stocks, which include airlines, were the only sector to rise on Friday, adding 0.9% on hopes that Republican party losses could accelerate efforts to end the Middle East conflict and bring down elevated oil prices.
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