Surging Volatility Creates New Opportunities for Long-Term Investors
European Stocks Experience Record Swings on Earnings Announcements
LONDON (Reuters) – European equity markets are experiencing unprecedented volatility as stock prices swing sharply in response to corporate earnings announcements. According to Bank of America (BofA), earnings-related volatility in European stocks is at a near-record high, with companies that miss expectations seeing the largest one-day underperformance since 2012. Meanwhile, companies exceeding forecasts have recorded their second-highest median outperformance in history.
This heightened volatility has caught the attention of long-term investors, who are now capitalizing on significant price fluctuations. Typically cautious investors with multi-year investment horizons are taking advantage of short-term market swings to adjust their portfolios, as big price movements create compelling buying and selling opportunities.
Long-Term Investors Adapt to Market Swings
Amid the turbulence, prominent asset managers are employing tactical strategies to benefit from the exaggerated stock movements.
“If you have something that looks incredibly oversold, I can buy more, and if something looks overbought, I can profit-take,” said Tom Lemaigre, portfolio manager at Janus Henderson Investors. Managing €7.5 billion ($7.8 billion) in assets, Lemaigre sees these swings as chances to refine his portfolio while maintaining a long-term outlook.
Similarly, Barry Glavin, head of equity at Amundi, Europe’s largest asset manager, emphasized that disciplined investors are taking advantage of significant price swings. “If we get an opportunity to buy a stock at a lower price and our investment thesis is unchanged, we’ll take it,” he said.
Big Market Moves Reflect Investor Sensitivity
The latest earnings season has revealed significant market reactions, with some companies witnessing double-digit gains and losses in a single day.
French luxury conglomerate Richemont, for example, saw its stock soar 16.4%—its largest single-day gain in 17 years—after outperforming earnings expectations on January 16. Similarly, Dutch payments giant Adyen surged 14.4%, and German semiconductor manufacturer Infineon jumped over 10% on their respective earnings announcements.
Conversely, companies failing to meet expectations have faced steep declines. Swiss banking giant UBS saw its stock tumble 7% following its earnings report, while premium cognac producer Rémy Cointreau plunged 7.4%. Other notable declines include global staffing firm Randstad (-6.5%) and Europe’s largest travel operator, TUI (-10%).
Hedge Funds and Market Structure Changes Amplifying Swings
Reuters’ analysis points to evolving market dynamics as a key driver of the heightened volatility. Hedge funds employing algorithmic trading strategies, as well as shifts in market structure, have contributed to the larger-than-usual stock swings.
Historically, European equities have been less volatile compared to their U.S. counterparts. However, the latest trend suggests that investor sentiment is becoming increasingly reactive to earnings results. This could indicate a broader shift in trading patterns, where institutional and retail investors alike are more willing to make aggressive portfolio adjustments based on short-term earnings reports.
The Road Ahead for European Equities
With the fourth-quarter earnings season only halfway through, analysts anticipate continued volatility in the weeks ahead. While long-term investors see the current environment as an opportunity, market participants must remain vigilant about macroeconomic factors that could further impact stock performance.
For now, the key takeaway is clear: heightened volatility has reshaped European stock trading, providing both risks and rewards for investors willing to navigate the swings.
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