European equities wobbled into the week’s key macro event, but the call from JPMorgan is clear: there’s still room to run in the near term. The STOXX 600 closed at 578.23, down 0.1%, as a slump in consumer staples offset gains in industrials and defense. Unilever fell 3.7% after completing its Magnum demerger, while L’Oréal slid 1.8% after boosting its stake in Galderma, which itself rose 2.8%. Against that backdrop, Fabio Bassi, JPMorgan’s head of cross-asset strategy, told Bloomberg Television that European equities can grind higher tactically despite unresolved structural issues. “We are at the tactical trade here to basically ride the wave and benefit from the fiscal impulse,” he said, framing the rally as a trade, not a thesis, ahead of a Federal Reserve meeting that is expected to deliver a 25 basis point rate cut but could skew tone-sensitive.
Bassi’s split-screen logic resonates with the tape. Europe’s long list of medium-term constraints has not shortened: no banking union, no capital markets union, chronic energy vulnerability, and a lag in commercial AI investment. Boardrooms are voting with their capex. In a survey by the European Round Table for Industry, 38% of major CEOs reported reducing or delaying planned investment in Europe, and only 8% intend to lift it; 45% plan to boost US investment. That backdrop argues for a lower-for-longer growth premium versus the US and helps explain Europe’s persistent valuation discount. But discounts do not preclude rallies. Near-term, policy and positioning are doing the work. Fiscal outlays remain supportive, particularly around defense and industrial transition, and bond yields have eased into the Fed decision. European equities remain under-owned in many global portfolios, which creates fuel for intraday squeezes and fast momentum when macro news lands better than feared. This is a market that trades the next two meetings, not the next two years.
The day’s micro tells the same story. Investors punished low-growth staples where pricing power and portfolio complexity are under scrutiny, and they rewarded hard-catalyst industrials. Unilever (UL, ULVR) dropped 3.7% after the Magnum spinoff, a reminder that unlocking value is not guaranteed on day one when brands are cyclical and reinvestment needs remain high. L’Oréal (OR.PA, LRLCY) slipped 1.8% after it increased its Galderma stake to 20%, while Galderma jumped 2.8% on the other side of the trade. Defense again provided ballast. Rheinmetall (RHM.DE) rose more than 2% as investors leaned into budget visibility and multi-year order books across Europe. Industrials as a group added roughly 0.2%, an incremental move that matters when the index is struggling for direction. The sector divergence is instructive: in a market trading tactically on policy and positioning, investors are rotating toward line-of-sight earnings and away from steady-eddy defensives whose earnings durability can get de-rated when bond yields chop and pricing momentum fades.
Europe’s next move likely tracks the Fed’s messaging as much as the Fed’s move. A 25 basis point rate cut is widely expected. The risk is not the cut; the risk is how Chair Jerome Powell frames the path ahead. If the guidance leans cautious, pricing for future cuts could compress, global yields could back up, and risk assets could wobble into year-end. For Europe, that cross-current runs through banks, exporters, and bond-proxy sectors. A softer Fed stance would support duration and ease financial conditions, which tends to lift quality growth and rate-sensitive cyclicals. A pushback from Powell could hit long-duration equities and sustain the rotation away from staples and bond-proxies that we saw today. The dollar’s reaction adds another layer: a firmer dollar on hawkish guidance would tighten financial conditions for the euro area and pressure exporters, while a softer dollar would do the opposite. Either way, a glass-half-full Fed keeps the tactical bid alive; a glass-half-empty Fed tests it.
The boardroom math is unfavorable for Europe in the medium term. Nearly four in ten top European companies are cutting or delaying local capex. Almost half plan to invest more in the US. That migration reflects deeper capital market depth, energy security, and a friendlier policy chassis for scale tech deployment. It will not reverse quickly, and it argues for keeping Europe’s long-term earnings growth expectations conservative. But capex droughts do not automatically derail near-term equity performance if fiscal and policy supports are doing the heavy lifting. Europe’s defense budgets are expanding. Industrial policy remains active. Energy prices, while volatile, are not in shock territory. And a global easing cycle led by the Fed can shrink Europe’s cost of capital on the margin. That is the “ride the wave” setup Bassi is pointing to: tactical flows, a milder rates backdrop, and pockets of earnings visibility. It is not a case for re-rating Europe up to US multiples; it is a case for adding exposure where the catalysts are tangible and the index-level overhangs are less binding on a one-to-three-month horizon.
In that frame, the playbook is selective. Overweight industrials and defense, where policy visibility and order backlogs underpin estimates. Be surgical in financials, skewing to balance sheets with asset sensitivity and modest capital markets exposure, given the lack of a banking union remains a structural lid. Underweight consumer staples until pricing normalization and brand investment needs are better reflected in valuations; the Unilever and L’Oréal tape shows that investors are less willing to pay up for certainty when certainty means slower growth and more portfolio reshaping. Keep a leash on high-duration tech without clear AI monetization paths in Europe’s listed universe, given the region’s lag in AI capex. And watch the macro tripwires that could break the tactical trade: a hawkish Fed that re-widens rate differentials, a renewed energy supply shock that revives Europe’s input-cost squeeze, or political risk that elevates risk premia into 2026 budget cycles. If those stay contained, the fiscal impulse and rates drift are enough to keep Europe grinding.
Price is the market’s vote, and the vote today was cautious rotation, not capitulation. A 0.1% dip in the STOXX 600 alongside bid defense and wobbly staples is not a bearish tell; it is a market bracing for the Fed with money shifting to where near-term earnings are most visible. That is the pattern that fits Bassi’s call: a tactical market taking what it can get from policy, fiscal and defensive order books while leaving the heavy structural lifting to policymakers who are not moving fast enough on capital markets integration or energy autonomy. Until that changes, Europe’s rallies will be rented, not owned. But rentals can be profitable, and for now, that is the trade.
