(Bloomberg) -- European stocks ended a volatile session with a slight dip as investors tracked the trajectory of bond yields and the prospect of higher-for-longer interest rates.
The Stoxx 600 index was down 0.1% by the close, hovering at its lowest level in over six months. The index had earlier gained as much as 0.6% as bond yields pulled back following data showing US companies in September added the fewest number of jobs since the start of 2021.
Technology, media and utilities stocks outperformed, while retailers and energy lagged. Among individual movers, Tesco Plc rose after boosting its profit forecast, while Spirent Communications Plc sank after a profit warning.
The selloff in the bond market has hammered global stocks in recent days on concerns that central banks will keep interest rates elevated longer than expected. The Stoxx 600 has extended losses after dropping for two months in a row, and is now less than 4% from erasing its 2023 gain. Focus is also now shifting to the third-quarter reporting season, which kicks off later this month.
“The changing monetary policy perspectives, along with macroeconomic uncertainty, could open a period of short-term volatility in the markets,” said Tomas Pinto, international equities fund manager at Bestinver. “This short term volatility could most likely provoke a higher dispersion in the market.”
Barclays Plc strategists, meanwhile, said stocks were likely to struggle without a “circuit breaker” in the bond market. While a solid earnings season had the scope to fuel a year-end rally, any signs of weakness would feed into “the perfect storm,” strategist Emmanuel Cau wrote in a note.
But Mathieu Racheter, head of equity strategy at Julius Baer, said he was “warming up to the idea” of buying the dip in equities as he expects them to bottom in mid-October.
“What we learned so far is that the economy is much more resilient to higher rates than most anticipated,” Racheter said. “We think the US 10-year yields will remain around current levels over the next months. The disinflation process should continue, while our base case still remains for a soft-landing of the US economy. Against this backdrop, we think the bottoming process in equity markets is well underway.”
For more on equity markets:
- Unstoppable Yields Are Starting to Make Big Waves: Taking Stock
- M&A Watch Europe: ABN Amro; Sandoz Spinoff; Golden Goose; BP
- Private Markets Hum While Europe’s IPOs Linger: ECM Watch
- US Stock Futures Little Changed; A10 Networks, Cal-Maine Fall
- Superdry Strikes IP Deal With India’s Reliance: The London Rush
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--With assistance from Michael Msika.
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