Europe's STOXX 600 reclaims record high on strong earnings, easing Mideast tensions

By Johann M Cherian and Anjana Jayakrishnan Nair

Nov 12 (Reuters) - Europe's benchmark STOXX 600 climbed to a record high on Thursday, boosted by strong corporate earnings, easing geopolitical tensions and investor rotation away from AI-linked stocks in Asia and the US.

The pan-European STOXX 600 .STOXX gained 0.4% to 665.61 points by 0926 GMT, after closing at record levels in the previous session. Equity benchmarks in most major regional markets were also higher, with Germany's DAX .GDAXI rising 1.1% to a new high.

Stocks have been buoyed in recent weeks by strong corporate earnings despite inflation and interest-rate hike concerns, while oil prices, a key import cost for Europe, slipping below $100 a barrel on easing US-Iran tensions further aided sentiment.

"Donald Trump's statement and the idea that an escalation is less likely in Iran has been a key driver of a rebound in risk sentiment across the globe, but particularly Europe," said Mark Preskett, senior portfolio manager at Morningstar Wealth Europe. He also said the earnings resilience was a surprise to many.

STOXX 600 companies are on track to post quarterly profit growth of 25%, the strongest in four years, according to LSEG data, with energy firms providing a major boost.

Siemens SIEGn.DE rose 4.4% after the industrial technology group raised growth projection, while Merck MRCG.DE gained 2.5% after the drugmaker increased its 2026 profit forecast for a third time this year.

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Europe's smaller exposure to AI-linked stocks has also supported its outperformance versus Asian and US peers as investors increasingly question the sustainability of the AI trade amid stretched valuations, debt-funded spending and the prospect of greater legislative scrutiny following Democrats' midterm electoral sweep.

Investors have instead taken a liking to defensives, with European healthcare .SXDP and consumer-related sectors such as food & beverage .SX3P, travel & leisure .SXTP and retail .SXRP reporting double-digit gains this quarter.

Energy .SXEP and chemicals .SX4P have continued to outperform on an annual basis, benefiting from higher commodity prices due to the Iran conflict.

"The European market is home to a different set of companies, with greater exposure to consumer-facing businesses, industrials and financials, and that has driven outperformance during a period when technology stocks have taken a bath," Preskett said.

The STOXX 600 has risen nearly 5% so far this quarter, while the S&P 500 .SPX is down 0.4%. Societe Generale analysts said 13 of the benchmark's 20 sectors have outperformed the index since the midterm elections.

However, not all sectors have shared in the rally. Luxury stocks .STXLUXP and autos .SXAP have been among the index's biggest laggards, down more than 16% each this year.

The luxury sector has been grappling with weakening demand in key market China, while automakers such as Volkswagen VOWG.DE and Volvo [RIC:RIC:VOLVO.UL] have seen some of the biggest hit to earnings this quarter on rising competition from Chinese electric-vehicle makers.

Concerns also prevail about higher government debt in countries such as France and Italy ahead of pivotal elections next year, which could test the resilience of European equities' record-breaking run.