European equities tumbled a second day on Friday, posting their worst weekly drop since July, as investors exited some of this year’s biggest winners amid concerns about stretched valuations.
The STOXX 600 closed 1.1 percent lower, after swinging between gains and losses during the day, taking its weekly decline to 1.9 percent.
Technology and real-estate stocks led the drop.
The move was similar to Thursday’s, when the losses in the NASDAQ Composite spoiled appetite for risk assets. On Friday, a retreat in US tech giants Amazon.com, Apple Inc, Microsoft Corp and Facebook Inc pushed the tech-heavy index to a two-week low.
In Europe, banks provided a rare bright spot on Friday, as a potential merger between Spain’s CaixaBank SA and Bankia SA lifted the sector to the top of the benchmark.
European equities have been under pressure this week on concern that the rally in growth stocks, and particularly in the tech sector, has been overdone.
Still, a rotation into cheaper value and cyclical shares might eventually benefit Europe over the US, in addition to sheltering the STOXX 600 from major losses, because the presence of tech stocks in the European benchmark is limited.
“The extent of Thursday’s selloff, and the one we are seeing today, on the back of very little in terms of new events or information, is a reminder that at extreme valuations share prices can be volatile,” Willis Owen Ltd head of personal investing Adrian Lowcock said. “If you don’t take profits the market will do it for you.”
A batch of economic data this week bolstered expectations that the European Central Bank (ECB) would maintain an accommodative stance to bolster inflation, in line with the US Federal Reserve.
“The Fed’s decision to move to an average inflation target has set the scene ... given the still high level of uncertainty surrounding any economic outlook, the ECB is highly unlikely to change its policy stance at next week’s meeting,” ING Groep NV chief economist for eurozone and global head of macro Carsten Brzeski wrote in a note.
Additional reporting by Reuters
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