European equities experienced sharp swings throughout November as mounting anxiety over a potential AI-fueled market bubble and tightening liquidity conditions triggered the steepest equity pullback since “Liberation day,” Barclays said in its latest European Equity Strategy report.
The bank noted that equity returns were the weakest since March, while performance for a global 60:40 portfolio was essentially flat, weighed down by stock market gains that were “slightly in the red,” according to the report completed on Nov. 30 and published Dec. 1.
Barclays highlighted that markets endured elevated intra-month turbulence as investors reacted to “AI angst and doubts over Dec Fed cuts,” before renewed expectations for rate reductions late in the month helped equities claw back most losses and allowed bonds to eke out a small advantage.
The firm added that Europe “outperformed marginally with periphery doing well as banks outperformed,” although worries about Germany’s fiscal stance created some drag on the region.
In the UK, equities largely moved in step with global peers, while gilts rallied following the government’s budget announcement, boosting domestic stocks and bond-proxy sectors into month-end.
Technology shares were the worst global performers as “AI bubble concerns” spurred selling, while defensive sectors led the gains. Healthcare posted the strongest defensive showing as fears about drug-pricing reforms eased, and financials outperformed on solid earnings and steady yields.
Some assets were hit particularly hard during the sell-off. Bitcoin slumped 17% amid liquidity worries and weak retail engagement, oil prices fell due to oversupply, while gold and industrial metals advanced in part on demand linked to AI capital-expenditure trends.
Investor flows provided a mixed picture. Barclays reported that, despite heightened volatility, equity inflows reached year-to-date highs in November. Hedge funds trimmed exposure, retail investors stayed cautious, and “real money buying was notable across regions.”
Europe and Japan recorded modest inflows, while emerging markets benefited from stronger demand, including renewed foreign investor interest in China.
Factor trends diverged sharply between the U.S. and Europe. In the U.S., momentum weakened significantly, weighing on growth stocks, whereas in Europe momentum unwound only slightly and value continued to “outperform.” Low-volatility defensive names gained from the volatility spike, and weakness in large AI-linked technology firms helped small-caps outperform.
Barclays said that global developed markets beat emerging markets overall, with equities in China, Korea, and Taiwan pressured by pullbacks in AI-related trades after months of strong gains. Japan lagged as proposed fiscal stimulus raised debt concerns and fuelled instability in the bond market.
Overall, Barclays described November as a month marked by abrupt swings driven by the evolving AI narrative and shifting expectations for central-bank easing. Despite the turbulence, most losses were recovered by month-end.
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