European equities endured one of their most turbulent months of the year, with November delivering the largest drawdown since “Liberation Day,” according to Barclays’ latest European Equity Strategy report. The month was marked by sharp intraday swings as investors grappled with rising anxiety over a potential AI-driven market bubble and waning liquidity conditions.
Barclays noted that equity returns were the weakest since March, weighing on global 60:40 portfolios and leaving overall performance largely flat. The downturn occurred as skepticism grew around the durability of AI-linked valuations and uncertainty intensified over whether the Federal Reserve would move ahead with a December rate cut.
Late-month shifts in rate expectations helped markets recover a meaningful portion of their losses, giving bonds a slight advantage over equities and tempering the overall damage.
Key catalysts behind the volatility:
- Rising fears of an AI-fuelled asset bubble
- Uncertainty over December Fed policy
- Liquidity tightening across global markets
Sector Divergence Marks the November Sell-Off
Barclays reported that Europe slightly outperformed global equities, with peripheral markets supported by bank strength. However, concerns over Germany’s fiscal spending constraints added pressure to continental sentiment. The UK traded broadly in line with peers, while gilts rallied after the government’s budget announcement, offering support to domestic stocks in the final days of the month.
Technology posted the steepest losses worldwide as AI-bubble fears triggered substantial selling. Meanwhile, defensive sectors—particularly healthcare and utilities—outperformed.
Performance standouts and laggards:
- Healthcare led defensive gains amid easing drug-pricing worries
- Financials benefited from resilient earnings and stable yields
- Bitcoin tumbled 17% on weak liquidity and soft retail flows
- Oil declined on oversupply, while gold and base metals rose on continued AI-related capex demand
Investor Flows Mixed as Global AI Trade Pulls Back
Despite the volatility, November saw year-to-date highs in equity inflows, with institutional “real money” buyers active across multiple regions. Hedge funds cut exposure, and retail investors remained cautious, but Europe and Japan still attracted modest inflows. Emerging markets—particularly China—also drew renewed foreign interest.
Factor trends diverged noticeably between regions. U.S. momentum weakened, dragging growth stocks, while in Europe momentum softened only slightly and value outperformed strongly. Defensive low-volatility names gained traction as swings intensified, and weakness in mega-cap AI stocks allowed small-caps to post relative outperformance.
Across global markets, developed economies outpaced emerging markets overall. Asian equities in China, Korea and Taiwan suffered from a sharp pullback in AI-linked trades, while Japan lagged due to rising debt concerns tied to new fiscal-stimulus proposals.
Barclays concluded that November was defined by abrupt sentiment reversals: a month when AI-linked uncertainty and shifting rate expectations sent markets sharply lower—only for most losses to be recouped by month-end.
