Luxury Boom vs. Fed Gloom: European Markets Whipsaw (Sept 23

Key Facts

Stocks Hit Weekly Highs: European stocks rallied on Sept. 23, with the pan-European STOXX 600 index up around 0.4% to its highest level in over a week ^[1]. Major indexes closed mostly higher – Germany’s DAX 40 rose 0.36%, France’s CAC 40 gained 0.54%, and Spain’s IBEX 35 added 0.5% – while the UK’s FTSE 100 was essentially flat (-0.04%) ^[2].
Luxury Spending Rebound: A surge in luxury-goods stocks led the charge. LVMH, L’Oreal, and Richemont were among the top gainers on Sept. 23 after data showed U.S. luxury spending turned positive in September for the first time in 37 months ^[3]. This American spending rebound buoyed Europe’s luxury giants, helping the STOXX 600 notch a multi-session high.
Sector Winners – Energy & Retail: Renewable energy got a boost as Denmark’s Ørsted jumped about 4% after a U.S. court allowed it to resume work on a major offshore wind farm ^[4]. Retailers also rallied nearly 2% on Sept. 23, driven by a 14.6% surge in UK home-improvement chain Kingfisher after it raised its profit outlook ^[5]. Ireland’s Kingspan leapt 8.2% on plans to IPO its data-center unit, underscoring investor appetite for corporate spinoffs ^[6].
Fed Jitters Stall Rally: The tide turned on Sept. 24 as European markets pulled back amid global rate jitters. By mid-morning Wednesday, the STOXX 600 was down about 0.3%, tracking Wall Street’s overnight decline after U.S. Fed Chair Jerome Powell offered no new clues on future rate cuts ^[7] ^[8]. Interest-rate sensitive financial stocks bore the brunt – European bank indexes fell roughly 0.8%, with lenders like Barclays and Deutsche Bank sliding ~1–2% each ^[9].
Defense Stocks Soar on Trump Comments: One bright spot on Sept. 24 was defense contractors. The sector climbed about 1.3% – near all-time highs – after U.S. President Donald Trump said he believes Ukraine can recapture all its Russian-occupied territory ^[10]. Swedish arms maker Saab surged 4.9% and Germany’s Hensoldt jumped 4.5% on the news ^[11], as investors bet on higher defense spending and geopolitical resolve.
Chemicals & Healthcare Lag: Not all sectors thrived. German chemical makers Lanxess and Evonik tumbled 6.0% and 1.9% respectively on Sept. 24 after a Deutsche Bank downgrade to “hold” hit their shares ^[12]. Healthcare stocks also slipped about 0.6% as heavyweights like AstraZeneca and Roche gave back ~1% ^[13], pausing a multi-day winning streak for Europe’s pharma sector.
Mixed Economic Signals: Fresh data painted a mixed picture for Europe’s economy. The euro zone’s flash composite PMI for September edged up to 51.2 (from 51.0 in August), marking a ninth straight month of modest growth ^[14]. However, analysts warned the “rosy” headline was misleading – Oxford Economics noted that soft business sentiment and falling export orders indicate “no strong rebound” underway ^[15]. By contrast, Germany’s closely watched Ifo business climate index unexpectedly fell, underscoring persistent weakness in Europe’s largest economy ^[16].
Central Bank Cross-Currents: Policy news drove sentiment. Sweden’s Riksbank surprised markets on Sept. 23 by cutting its key interest rate 25 bps to 1.75% and signaling a prolonged pause ahead ^[17]. In the UK, BoE Chief Economist Huw Pill struck an “optimistic” tone on easing inflation, saying he’s more at ease with price trends now ^[18]. But across the Atlantic, Fed Chair Powell reminded investors that further U.S. rate cuts are “not guaranteed,” tempering dovish hopes ^[19] – even though futures markets still peg the chance of an October Fed rate cut above 90% ^[20].
Outlook – Cautious Optimism: European equities remain within touching distance of record highs – the STOXX 600 sits ~2% below its all-time peak from March ^[21] and is up ~9% year-to-date (versus +13% for the U.S. S&P 500) ^[22]. Analysts say continued strength in consumer spending (e.g. the luxury rebound) and potential central-bank easing could help Europe’s indexes break into new high ground. However, the OECD warns that headwinds like U.S. trade tariffs and political unrest may slow euro zone growth to just 1.0% next year (from 1.2% in 2025) ^[23], even as inflation drifts back to target. With inflation expected to hold around 2%, hopes remain alive that the ECB and peers have room to loosen policy further if needed ^[24] – a prospect that could support stocks, albeit amid likely volatility.

European Markets Rally on Luxury and Tech (Sept 23)

European stocks kicked off the week’s second session with a broad rally on Tuesday, Sept. 23, driven by upbeat corporate news and a rebound in global risk appetite. The pan-European STOXX 600 index closed up 0.4% – its best level since mid-September ^[25] – as virtually all major country bourses advanced. Frankfurt’s DAX 40 and Paris’s CAC 40 climbed 0.36% and 0.54% respectively, Madrid’s IBEX 35 added 0.5%, and Milan’s FTSE MIB rose 0.13% ^[26]. London’s FTSE 100 was the lone laggard, ending essentially flat (-0.04%) ^[27] despite strength in exporters, as a stronger pound and some downbeat UK corporate updates kept the index in check.

Wall Street’s Record Highs Boost Sentiment: The bullish mood in Europe came on the heels of fresh all-time highs on Wall Street the day before. On Monday the 22nd, the U.S. Dow Jones and S&P 500 set new record peaks, buoyed by a tech-led rally ^[28]. Those overnight gains helped set a positive tone in Europe, with investors encouraged by the global risk-on wave following the U.S. Federal Reserve’s first rate cut of 2025 the prior week ^[29]. “Fed rate cut expectations” had lifted markets worldwide, and European equities were no exception ^[30]. Early Tuesday, most European indexes gapped higher and never looked back.

Luxury Stocks Lead the Charge: A standout catalyst on Sept. 23 was a surprise revival in luxury goods demand. Bank of America card data showed American luxury spending turned positive in September for the first time in 37 months – a remarkable turnaround after three years of declines ^[31]. This fueled a rally in Europe’s heavyweight luxury names, which are heavily exposed to U.S. consumer trends. Shares of French conglomerate LVMH, cosmetics giant L’Oreal, and Swiss jeweler Richemont all surged, ranking among the STOXX 600’s top ten gainers ^[32]. The luxury sector’s strength helped lift France’s CAC 40 in particular, given its large component of high-end retail stocks.

Tech and Wind Energy Get a Lift: Optimism over the tech sector also rippled through European bourses. Chipmakers and AI-related stocks jumped after Nvidia revealed plans to invest up to $100 billion in OpenAI and supply it with advanced chips ^[33]. The news underscored the continued frenzy around artificial intelligence, benefiting Europe’s tech index, which reversed early losses to close up 0.6% ^[34]. Meanwhile, renewable energy shares spiked on a positive legal development in the U.S. A federal judge ruled that Denmark’s Ørsted can resume work on a nearly completed offshore wind farm in Rhode Island, after a temporary halt over permitting ^[35]. Ørsted’s stock jumped ~4% on the ruling ^[36]. “We take it as a favorable development,” said Laura Cooper, global investment strategist at Nuveen, applauding the decision as a green light for clean energy projects ^[37]. The court win boosted sentiment across European renewables names, adding another leg to Tuesday’s rally.

Retailers and IPO News Spark Gains: Consumer-related stocks also outperformed. The European retail index climbed nearly 2% thanks to a blockbuster jump in Britain’s Kingfisher, one of Europe’s largest DIY/home improvement chains ^[38]. Kingfisher’s shares soared 14.6% after the company raised its full-year profit outlook, signaling resilience in consumer spending on home projects ^[39]. In Ireland, building materials firm Kingspan Group saw its stock leap 8.2% upon announcing plans to IPO a 25% stake in its data-center unit, a move that could potentially make the company debt-free ^[40]. The prospect of unlocking shareholder value via the spinoff excited investors, and Kingspan’s big gain helped lift the broader construction and materials segment.

Health Care and Utilities Sit Out Rally: Not every corner of the market joined Tuesday’s risk rally. Defensive sectors underperformed as money rotated into cyclicals. The European healthcare index snapped its longest winning streak in over a month, dropping about 1.2% ^[41]. Pharma giants Roche and Novo Nordisk each fell over 2%, seeing a bit of profit-taking after strong runs ^[42]. Utilities were also muted amid rising risk appetite. Still, by the close of Sept. 23, advancers solidly outnumbered decliners across European exchanges, and the STOXX 600 had recovered roughly 2% from its lows earlier in the month ^[43].

Fed Caution Triggers Pullback (Sept 24)

The upbeat momentum faded by Wednesday, Sept. 24, as European markets lurched into consolidation mode. Stocks opened lower following a weak handover from New York, where major U.S. indexes fell overnight after cautious comments from Fed Chair Jerome Powell. By early Wednesday trading, the STOXX 600 was down about 0.3% and most regional exchanges slipped into the red ^[44]. Italy’s FTSE MIB led declines with a ~0.4% drop ^[45], and benchmarks in Paris, Frankfurt and Madrid all ticked lower. The mood had clearly shifted to “risk-off” as traders digested Powell’s signal that the Federal Reserve wasn’t firmly committed to additional rate cuts in the near term ^[46].

Powell’s “No New Clues” Hits Confidence: Speaking on Tuesday, Powell offered no fresh guidance on when the Fed might cut rates again – emphasizing the need to balance high inflation against a still-cooling job market ^[47]. In his first public remarks since the Fed’s surprise rate cut the week prior, Powell warned further easing was not guaranteed if economic data doesn’t cooperate ^[48]. That hawkish undertone caught markets off guard. “When Powell reminded investors on Tuesday that further cuts are not guaranteed, markets recoiled,” observed analysts at BCA Research in a note ^[49]. Indeed, European traders followed Wall Street’s lead in pulling back risk exposure. The U.S. dollar strengthened and global bond yields ticked up on Powell’s comments ^[50] ^[51], adding pressure to equities. Rate-sensitive sectors in Europe felt the heat immediately on Sept. 24, with financial stocks hardest hit.

Banks and Financials Lead Losses: The European banking index dropped roughly 0.8% Wednesday, the steepest sector decline ^[52]. Several big lenders saw notable share-price dips. In London, Barclays fell about 2%, while Frankfurt-listed Deutsche Bank slid ~1% ^[53]. Nordic banks also struggled (Denmark’s Sydbank sank 2%) ^[54]. The sell-off reflected fears that a less accommodative Fed – and by extension, potentially cautious European Central Bank – could pinch banks’ profit outlook or dampen loan growth. The broader financial services sub-index shed over 1% as asset managers and insurers also lost ground ^[55]. Healthcare names extended their mild retreat from the day prior, dipping another 0.6% with AstraZeneca and Roche down about 1% each ^[56], as investors rotated further out of defensives.

Trump’s Ukraine Remarks Fuel Defense Rally: A countervailing force on Wednesday was a rally in defense and aerospace stocks, which helped limit the market’s downside. European defense contractors got an unexpected boost from political news: speaking at the U.N., U.S. President Donald Trump struck an unusually optimistic tone on the war in Ukraine – stating he believes Ukraine “could retake all its land” occupied by Russia and urging Kyiv to act swiftly ^[57]. This hawkish rhetoric in support of Ukraine galvanized defense shares on both sides of the Atlantic. The European defense sector index jumped ~1.3%, hovering near record highs ^[58]. Investors anticipated that stronger Western resolve (especially from a U.S. president known for prior skepticism on endless foreign aid) could translate into sustained demand for military equipment.

Several defense firms saw outsized gains: Sweden’s Saab was the top performer on the STOXX 600, surging 4.9% ^[59], and Germany’s radar and sensor maker Hensoldt rallied 4.5% ^[60]. Britain’s BAE Systems and France’s Thales also climbed (around 1–2% each, per market data) as investors bet on increased defense spending. The strength in defense stocks provided a cushion for indexes like France’s CAC 40 and Germany’s DAX, partially offsetting weakness in bank and industrial shares. By midday, European markets were well off their lows – the STOXX 600 even flickered back to flat at one point ^[61] – thanks in part to the support from the defense sector.

Corporate Laggards – Chemicals & Autos: Aside from banks, a few stock-specific drops weighed on Wednesday’s market. In Germany, specialty chemical makers Lanxess and Evonik plunged 6.0% and 1.9% respectively after Deutsche Bank cut its rating on both companies to “Hold” from “Buy” ^[62]. The downgrade, citing a lackluster demand outlook, punished Lanxess with its worst one-day loss of the year. Some auto stocks also came under pressure amid concerns about higher borrowing costs and supply chain snags – traders noted profit warnings from U.S. peers hurt sentiment. However, losses in autos and other cyclicals were relatively contained compared to the broad selling in financials.

By the close of Sept. 24, most European indices had given back the prior day’s gains. The STOXX 600 finished marginally lower (around -0.3% on the day) ^[63]. National markets mirrored that caution: France’s CAC 40 ended down about 0.4% and Germany’s DAX slipped modestly (just under half a percent) ^[64]. London’s FTSE 100 also turned negative, as weakness in banking and consumer stocks outweighed strength in oil majors (which were buoyed by a rising crude price). In short, Wednesday brought a reality check to the European rally – a reminder that central bank policy and global growth signals remain pivotal for market direction.

Key Economic and Political Developments

Several economic and geopolitical currents underpinned the market’s gyrations during the Sept. 23–24 period:

Resilient but Reliant Euro Zone Growth: Fresh data show the euro zone’s recovery maintained a tenuous momentum as autumn began. The HCOB Flash Composite PMI – a timely indicator of business activity – inched up to 51.2 in September, from 51.0 in August, indicating the bloc’s private sector is still expanding (albeit slowly) ^[65]. This marked the ninth consecutive month of growth, defying expectations of a slowdown. However, details within the report were less encouraging. “The details are not as rosy as the headline index suggests,” warned Riccardo Marcelli Fabiani of Oxford Economics ^[66]. He noted that business sentiment remains soft and new export orders are deteriorating, pointing to lingering weakness in manufacturing ^[67]. In fact, the PMI uptick was almost entirely thanks to Germany. Germany’s PMI jumped to a 16-month high of 52.4 in September, boosted by Berlin’s fiscal stimulus efforts ^[68]. But France’s PMI sank to 48.4 – its 13th straight month in contraction, and the sharpest decline since April ^[69] – reflecting how French political turmoil and protests have been dragging down activity ^[70]. “France stands out negatively,” observed ING economist Bert Colijn, noting that heightened political uncertainty is clearly weighing on the French economy ^[71]. Similarly, the UK saw its composite PMI slip to 51.0 (from 53.5), signaling Britain’s post-pandemic rebound is losing steam amid waning confidence ^[72].
German Gloom – Surprise Dip in Business Morale: On Sept. 24, focus turned to Germany’s economic outlook after the Ifo institute’s business climate index unexpectedly fell. The Ifo survey showed German business morale declined in September, confounding forecasts for a slight improvement ^[73]. Executives in Europe’s largest economy grew more pessimistic about current conditions and the six-month outlook, citing high energy costs and export headwinds. This added to concerns that Germany could be flirting with recession. (Official data earlier revealed Germany’s GDP shrank 0.3% in Q2 2025, a worse contraction than initially estimated ^[74], due in part to weaker industrial production and falling exports amid global trade tensions.) The slip in German sentiment underscores that, despite massive government spending to prop up growth, the country’s manufacturing-heavy economy remains under stress from slowing Chinese demand and U.S. tariff frictions.
Central Banks: Easing on Hold? The period saw mixed signals from central bankers. In a notable move outside the euro zone, Sweden’s Riksbank delivered a surprise 25 basis-point rate cut on Sept. 23, lowering its policy rate from 2.00% to 1.75% ^[75]. The Swedish central bank cited easing inflation pressures and a need to support growth; it then signaled a “prolonged pause” – suggesting it may now hold rates steady for an extended period ^[76]. The Stockholm stock market cheered the move, with Sweden’s OMX index hitting a near one-month high on Tuesday ^[77]. Meanwhile in the UK, Bank of England official Huw Pill struck a cautiously optimistic tone in remarks this week: Pill said he is “more at ease” with the inflation outlook now than earlier in the year ^[78]. His comments hinted that the BoE may also refrain from further tightening as price growth shows signs of cooling. The European Central Bank (ECB) itself was not actively in play – the ECB had left rates unchanged at its mid-September meeting, after several rate cuts earlier in 2025. However, the ECB will be watching data closely: with euro-zone inflation now roughly at the 2% target, policymakers have indicated they feel policy is “in a good place” for the moment ^[79]. In fact, a new OECD report released on Sept. 23 bolstered the case that the ECB might be done cutting: the OECD projected euro-area inflation will stabilize at or just below 2%, which “will keep alive hopes for more policy easing” if growth sputters ^[80]. For now, though, central bankers seem content to pause and assess – a stance echoed by Powell’s measured approach in the U.S.
Trade Tensions and Tariffs: A cloud on the horizon is the full impact of U.S. trade tariffs on Europe. The OECD’s analysis warned that many of President Trump’s tariff increases on European goods (and global supply chains) have yet to fully hit, as companies had initially absorbed costs or shifts were phased in ^[81]. Those effects are “becoming increasingly visible,” the report noted, and are expected to slow euro zone growth to 1.0% in 2026 from 1.2% in 2025 ^[82]. In other words, higher trade frictions and geopolitical uncertainty – from U.S.-China tensions to sanctions related to Russia’s war in Ukraine – could negate some benefits of lower interest rates and Germany’s fiscal stimulus ^[83]. This stark forecast injected a note of caution: Europe’s economy might face a tougher 2026 even if domestic demand holds up, implying corporate earnings could come under pressure in export-focused sectors.
Geopolitical Risks: Investors also kept a wary eye on geopolitical developments. Russia’s war in Ukraine remains a persistent source of uncertainty for European markets. President Trump’s remarks at the U.N. – effectively encouraging a Ukrainian offensive – were taken as a sign of steadfast Western support, boosting defense stocks as noted. But the conflict’s trajectory is unpredictable, and energy supply concerns are never far from mind in Europe. Thus far, natural gas prices have been relatively stable, and Europe entered autumn with gas storage near capacity, muting immediate energy-crisis fears. However, oil prices have been on the rise: on Sept. 24, Brent crude jumped over 1.4% to about $68.60 per barrel ^[84] after reports of tightening supplies (due to export snags in Kurdistan, Venezuela, and disruptions in Russia) added to an already firm oil market. While oil’s rise supported shares of European oil majors, it also rekindled inflation anxieties – a reminder that any Middle East flare-up or supply shock could pressure prices and complicate central bank policies. Additionally, the ongoing Israel-Hamas conflict and U.S.-China tensions over trade and technology remain background risks that could, if escalated, dampen market sentiment in Europe. In short, the geopolitical backdrop is complex: certain events (like Ukraine aid) provided tailwinds to specific sectors, but the overall risk environment urged caution.

Expert Analysis and Market Outlook

Market experts are parsing the cross-currents to gauge what’s next for European stocks. Analyst sentiment is mixed, reflecting the tug-of-war between improving fundamentals in some areas and gathering clouds in others.

On one hand, optimists highlight resilience. They point to data like the enduring (if mild) growth in euro-zone output and signs that inflation is finally under control. The fact that European equities are only ~2% shy of record highs set earlier in March suggests underlying strength ^[85]. Consumer spending is holding up, as evidenced by the luxury sector’s revival and retail sales surprises, and corporate earnings so far in 2025 have proven better than many feared. “Fiscal expansion is expected to boost economic activity in Germany,” the OECD noted, referring to Berlin’s hefty public investments and subsidies that should stimulate growth ^[86]. Moreover, with euro-area inflation now near 2%, monetary policy may stay accommodative or even ease further. The OECD’s latest outlook confirmed the ECB’s view that price pressures have moderated enough that rate hikes are off the table – and indeed “hopes for more policy easing” remain alive if the economy needs a lift ^[87]. Lower interest rates and bond yields would be a boon for stocks, supporting higher valuations. Many investors are positioned for potential rate relief: despite Powell’s cautious tone, futures markets still imply over a 94% probability that the Fed will cut rates again by the end of October ^[88], and possibly once more by year-end. If those cuts materialize (and perhaps similar moves follow from the Bank of England or ECB), equity bulls believe European markets could break out to new highs in the coming months.

On the other hand, pockets of skepticism remain – especially regarding Europe’s growth trajectory and external risks. Economists warn that the apparent stability now could mask weakness ahead. “The details are not as rosy as the headline index suggests,” Oxford Economics’ Marcelli Fabiani cautioned regarding the recent PMI uptick ^[89]. He and others note that demand in Europe is fragile: export-dependent industries are struggling with order books as global trade slows, and even consumers may turn cautious if energy costs creep up or labor markets soften. Bert Colijn of ING has flagged France’s woes as a canary in the coal mine – political unrest and policy uncertainty there (from protests to budget debates) risk spilling over to sentiment across Europe ^[90]. If France’s economy continues to flounder and Italy also faces fiscal tightening (as the OECD projects ^[91]), the euro zone’s overall growth could falter despite Germany’s strength. In the view of these analysts, corporate earnings forecasts for 2025–26 might be too optimistic and could see downgrades if higher costs (wages, energy) and slower sales growth materialize.

Market strategists also caution that central bank support is not a panacea. The dramatic rally in U.S. tech stocks – fueled by enthusiasm over AI – has far outpaced Europe’s more value-oriented market this year, with the S&P 500 up ~13% vs. ~9% for the STOXX 600 ^[92]. Unless Europe finds its own growth catalysts (for instance, a faster adoption of AI or a resurgence in bank profitability), it could continue to “fall behind [its] U.S. counterparts,” as Reuters noted ^[93]. Valuations in Europe are comparatively cheap, but that gap could persist without a clear driver. BCA Research analysts have also warned that markets remain highly sensitive to policy signals. The swift negative reaction to Powell’s commentary – “markets recoiled” when he downplayed guaranteed rate cuts ^[94] – shows that investor sentiment is fickle. Any hawkish surprise from central banks or a resurgence of inflation could spark volatility. As one fund manager quipped, “We’re one bad inflation print or one geopolitical shock away from a correction.” In other words, caution is still warranted.

Looking ahead, the consensus among many experts is that European stocks could grind higher, but with increased choppiness. Much depends on upcoming data and events. Key catalysts on the horizon include inflation readings (to confirm that price stability is on track), central bank meetings (the ECB and BoE will meet in coming weeks, and any hints of future rate cuts could excite markets), and the trajectory of the U.S. economy (a soft landing in the U.S. would benefit Europe, whereas a U.S. recession would hurt exports). On the positive side, Europe’s domestic economy has shown surprising robustness – unemployment remains low, and governments stand ready with fiscal support if needed. If the euro zone can navigate through winter without an energy crunch and if China’s stimulus measures prop up demand for European exports, there is a path for European equities to end the year on a high note.

However, the margin for error is thin. The OECD’s forecast of just 1.0% GDP growth next year ^[95] underscores how sluggish the baseline is. Any adverse development – be it a reignition of trade disputes, a flare-up in commodity prices, or political upsets (e.g. a government budget crisis or debt concern in a member state) – could easily derail confidence. Investors are thus likely to stay selective and hedged. Sectors with clear tailwinds, like defense (on geopolitical rearmament), energy (if oil stays elevated), or high-end consumer goods (tapping the wealthy consumer), may continue to outperform. In contrast, sectors tied to old-economy cyclicals or heavily indebted companies could lag if borrowing costs don’t decline as hoped.

In summary, the last two days highlighted the European market’s push-pull dynamic: optimism from strong corporate stories and easing inflation on one side, met by caution over central bank intentions and growth headwinds on the other. The result is a market that can whipsaw quickly, as seen by the luxury-fueled jump followed by the Fed-induced dip. Traders and investors should brace for more of this two-way volatility. As Europe’s STOXX 600 hovers near record territory, the coming weeks will test whether it has the momentum to break out decisively. Further interest rate relief or upbeat earnings could provide the spark. But absent those, the market may churn in place or even correct if confidence falters. For now, many experts are counseling a balanced approach: “cautious optimism” is the phrase of the moment ^[96]. European stocks still have room to run, they say, but it will likely be a bumpy ride to get there.

Sources: European stock market reports and analysis from Reuters ^[97] ^[98] ^[99], Anadolu Agency ^[100], and OECD and Ifo economic data. All information is based on news and data from Sept. 23–24, 2025.

Stocks Lower, Powell Reiterates 'No Risk-Free Pat' For Fed | The Close 9/23/2025