European stock markets become a "counter-AI trading" safe haven, with defensive sectors leading October gains

Amid headwinds from inflation and economic growth, European stock markets stood out in October due to their robust defensive characteristics, emerging as the global “anti-AI trade” representatives. Not only did they outperform US stocks and major global benchmark indices, but they also provided a fresh haven for risk-averse investors.

In October, the STOXX 600 Index in Europe climbed 1.9%, marking its best monthly performance since June and recouping most of its September losses. The index outperformed the S&P 500 Index by 2.9 percentage points and also led the MSCI World Index by 2.8 percentage points.

The main driving force behind this rally came from traditional industries with clear earnings prospects, defensive cash flows, and solid balance sheets. The healthcare sector posted its best monthly performance since 1987, while the food, beverage, and tobacco sector achieved its strongest monthly gain on record.

This risk-aversion-driven sector rotation highlights the allocation shift of global capital as risk appetite cools. With surging oil prices and growing concerns over the artificial intelligence (AI) sector, European markets further decoupled from US tech stocks, giving investors a direct defensive choice for hedging AI-related risks and macro uncertainties.

Becoming the “Anti-AI Trade”: Defensive Sectors Decouple from US Stocks

European stock markets displayed clear “anti-AI trade” characteristics in October, with value-driven buying quickly returning as valuation signals emerged in the market.

According to Bloomberg data, the correlation between the STOXX 600 Index and the Nasdaq 100 Index dropped to 18% in October, less than half its average level over the past 12 months.

In this market environment, the FTSE 100 Index, rich in defensive utility and consumer staples stocks, emerged as the ultimate AI hedge tool.

When market risk appetite fades, these stocks attract investors due to their reliable returns. Meanwhile, driven by soaring oil prices and concerns over AI, European defensive sectors outperformed cyclical sectors with their strongest relative performance in years.

From a technical perspective, the STOXX 600 Index also indicated positive signals. After briefly testing its 40-week moving average near 625 points, the index rebounded, breaking above the descending channel formed since its historic high in August, and climbed back above its 10-week and 20-week moving averages.

Furthermore, according to Bloomberg, as earnings season unfolds, European corporate earnings performance is narrowing the gap with the US, with third-quarter profit growth expected to be only slightly below the S&P 500 Index—the closest in growth rates between the two in over three years.

Macro Headwinds Remain, UK and France Markets Diverge

Despite the overall solid index performance, Europe continues to face challenging macro conditions, with geopolitical and regional fiscal risks leading to significant divergence among national markets.

Following renewed supply concerns from an attack in Saudi Arabia, Brent crude prices surged above $115 per barrel, intensifying inflation anxieties.

On the European continent, turbulence and fiscal anxiety in France widened the 10-year government bond yield spread between France and Germany (OAT-Bund spread) to its highest since the eurozone debt crisis.

French banks and retailers have become proxies for sovereign risk, with the underperformance of the CAC 40 Index in 2026 further exacerbating the situation.

Amid concerns over consumer spending, retail giant Carrefour cut its full-year earnings guidance. The company’s CEO Alexandre Bompard described the current situation as “unprecedented.”

In contrast, the UK market provided a positive hedge. As the increase in bank taxes in the UK budget was less than market fears, shares of Lloyds and Barclays rose, ending their weeks-long downtrend.

However, with rising political uncertainty, UK water utility stocks remain in the market spotlight, with short positions increasing across major utility firms.