European equities rebounded on Thursday, following the U.S. Federal Reserve’s first interest rate cut of 2025. Investors welcomed the move but remained cautious. Volatility persisted as different sectors and stocks reacted unevenly.

Market Overview

The pan-European STOXX 600 index climbed 0.5% to 553.49 points by 0715 GMT. Gains were broad-based, reflecting optimism after the Fed signaled a modest easing of U.S. monetary policy.

Some individual stocks, however, fell sharply. SIG Group, a Swiss packaging firm, dropped 20%, forcing a temporary trading halt. The company issued a profit warning for 2025 and suspended its cash dividend. Investors expressed concern about its financial health and near-term prospects.

In the UK, Next, a leading fashion retailer, lost 5.5%. Although the company posted a 13.8% increase in first-half profits, it warned that UK sales growth may slow in the second half. Market participants focused on the cautious outlook, which outweighed the strong earnings performance.

Sector Performance

The healthcare sector outperformed. Novo Nordisk shares jumped 2.6% after its experimental Wegovy weight-loss pill demonstrated a 16.6% average reduction in body weight in late-stage trials. Analysts noted that this exceeded expectations and could boost long-term revenue.

Financials gained 0.8%, supported by banks that benefit from stable lending conditions and expectations of modest interest rate cuts across Europe. Energy stocks rose 1%, driven by steady oil prices and strong commodity demand from Asia.

Conversely, the consumer discretionary sector underperformed. Retailers like Next faced headwinds from slowing domestic demand and inflationary pressures. These factors caused investors to adopt a more cautious stance in discretionary equities.

Currency and Bond Market Movements

The U.S. dollar initially fell after the Fed’s rate cut. Lower interest rates reduce the yield advantage for U.S. assets. Later, the dollar regained some strength as investors recognized the Fed will act cautiously and depend on incoming economic data.

European sovereign bonds showed limited movement. Short-term yields remained steady as investors awaited fresh data on inflation and growth. Traders also monitored the bond spread between Germany and peripheral European economies to gauge regional risk sentiment.

Commodities Performance

Gold prices rose slightly, approaching $2,480 per ounce. Investors purchased gold as a hedge against policy uncertainty and global economic risks.

Oil prices remained near $92 per barrel. Supply concerns balanced weaker demand projections, creating stability. Industrial metals like copper and aluminum saw modest gains, supported by expectations of easing U.S. monetary policy and stronger demand in emerging markets.

Economic and Policy Implications

The Fed cut rates to counter signs of slowing U.S. growth and weakening labor markets. The move signals support for risk assets while maintaining flexibility for future policy decisions. Investors interpreted the decision as cautious but positive for global markets.

For Europe, lower U.S. rates may weaken the dollar, which benefits exporters. Strong exporters like Germany’s automotive and machinery sectors could see improved margins. However, cautious Fed messaging suggests global growth risks remain, which may limit further upside in equities.

Investor Sentiment and Trading Outlook

Investor sentiment remains mixed. Traders are optimistic about short-term gains but cautious about potential volatility.

• U.S. inflation data, including CPI and PCE, will drive Fed policy expectations in the coming weeks.

• Corporate earnings in Europe and the U.S. will influence market direction.

• Geopolitical tensions, such as U.S.-China trade relations, could create sudden market swings.

Active traders may focus on sectors sensitive to interest rate cuts, such as technology, financials, and healthcare. Defensive sectors, like consumer staples, may outperform if risk sentiment deteriorates.

Strategic Takeaways

European markets show resilience, but stock-specific risks remain. SIG Group’s profit warning highlights the importance of monitoring individual company fundamentals.

Investors should adopt a balanced approach: monitor macroeconomic trends, assess corporate earnings, and track central bank communications closely. Markets may remain volatile as traders react to policy changes, inflation data, and geopolitical developments.