European stocks posted modest gains on Thursday, with the pan-European Stoxx 600 index rising 0.16% to 643.73 points. This marked the third consecutive session of gains, although caution over the ongoing conflict in the Middle East tempered market enthusiasm despite a strong earnings season. The index has increased by 0.41% this week, driven by robust earnings reports, particularly from ASML, a key supplier of chip-making equipment.
Earnings Season
Investors had hoped that the earnings season would shift focus back to corporate fundamentals, but geopolitical tensions have kept markets in a tight range. Basic resources stocks were the biggest laggards on the benchmark, declining by 1.38%, while media shares led with a 1.43% gain. Technology stocks remained flat, even as Taiwan’s TSMC reported a record 77% increase in second-quarter profit. ASML shares jumped by 3.16%, but semiconductor stocks such as STMicroelectronics and BE Semiconductor fell by 4.91% and 3.20%, respectively.
Market Outlook
Despite the current geopolitical climate, analysts remain optimistic about Europe’s investment outlook. Randy Baron, a portfolio manager at Pinnacle Associates, noted that
the thing that Europe has going for it is that valuations are much more favourable.
Data from LSEG indicated that renewed US-Iran hostilities have led investors to increase expectations for at least one 25-basis-point rate hike by the European Central Bank by the end of 2026. Michele Morganti, a senior analyst, suggested a neutral stance on US versus Europe but expressed a slight overweight on European investments, anticipating potential easing of the conflict.
The ongoing conflict in the Middle East is likely to keep European stocks under pressure, particularly in sectors sensitive to geopolitical risks, such as basic resources and technology. Investors will be closely monitoring the situation for any signs of de-escalation that could improve market sentiment. Watch for upcoming earnings reports from major European companies, which could further influence market dynamics.