European stock markets are on track to achieve their longest monthly winning streak since 2013 as trading begins on the final day of February, poised for an eighth consecutive month of gains. Investors seeking alternatives to the U.S. stock market are increasingly favoring European markets, which are weighted towards "old economy" sectors with substantial physical assets and stable cash flows. This shift comes as the "AI disruption" narrative negatively impacts U.S. markets, which have a heavier concentration in digital and asset-light companies. Both retail investors and highly leveraged hedge funds are showing growing interest in European equities.
As of Wednesday, equity funds focused on European stocks saw inflows of approximately $3.2 billion this week, marking the fourth consecutive week of substantial net inflows. Year-to-date, investors have injected around $18 billion into European stock funds. At the time of writing, the benchmark STOXX Europe 600 index was trading nearly flat near record-high levels. The index has gained 3.6% in February and is set to record its eighth straight month of robust gains. Since the start of the year, the STOXX Europe 600 has outperformed the S&P 500 by six percentage points.
In early Friday trading, European markets opened higher. The Euro Stoxx 50 index rose 0.05%, Germany's DAX index increased by 0.07%, the UK's FTSE 100 climbed 0.22%, France's CAC 40 edged up 0.01%, and Italy's FTSE MIB advanced 0.19%. Mining and healthcare stocks were among the top performers, while the travel and media sectors lagged.
As illustrated, European stocks are highly likely to achieve their longest winning streak since 2013. The sustained rally is driven by Western investors rotating capital away from other regions due to lofty valuations for U.S. tech stocks, the disruptive impact of the "AI revolution" on software and digital economy sectors, and growing concerns over the massive expenditures by tech giants on artificial intelligence. Furthermore, a broadly positive earnings season has further bolstered bullish sentiment towards European equities.
Concerns about AI-driven disruption are also providing a significant tailwind, given the market's composition. Year-to-date, European sectors heavy in physical assets and traditional economy focus—such as basic resources, energy, telecommunications, and utilities—have delivered strong performance, with gains reaching double digits, up to 25%. This compares to a 7% rise for the STOXX 600 index. Additionally, European companies have announced record levels of share buybacks. Data tracked by Barclays shows that constituent companies of the STOXX Europe 600 have announced buybacks totaling €85.7 billion (approximately $101 billion), a record high for the January-February period.
Amid the pervasive theme of AI disruption, where can investors find a safe haven? Wall Street giant Goldman Sachs offers a key concept: HALO. Strategists from Goldman Sachs released a report stating that companies with heavy, tangible production assets are significantly outperforming the global equity market, which is a core reason for European stocks' outperformance versus U.S. stocks. As global investors, including hedge funds and retail participants, actively seek safe havens from the selling pressure associated with "AI disruption," they are collectively turning their attention to HALO-type equities—those characterized by Heavy Assets and Low Obsolescence risk from AI. These stocks have a higher weighting in Europe, whereas U.S. market weightings are skewed towards "light capital" stocks.
The Goldman Sachs research team stated that their constructed basket of "heavy asset-intensive" stocks—whose economic value derives from physical assets or tangible means of production—has significantly outperformed a control group of "light capital" stocks, which rely more on human or digital resources/capital, by approximately 35% since the start of 2025. The "HALO effect" referenced in Goldman's report is not the psychological term but refers to companies whose value stems from physical assets, core production capacity, manufacturing networks, or infrastructure that are costly to replicate and have long lifespans. These are therefore perceived by investors as less susceptible to rapid replacement or "technological obsolescence" by AI, making them more likely to receive a "safe-haven premium" during periods of AI-related anxiety.
"The market is rewarding capacity, dense manufacturing networks, infrastructure, and highly complex manufacturing projects—assets that are extremely expensive to replicate and require AI systems to engage in costly, trial-and-error processing or production experiments, thus making them less vulnerable to AI-driven technological displacement," Goldman Sachs strategists wrote. Key characteristics include, first, barriers related to heavy asset-based production, such as power grids, mines, oil and gas assets, large utility networks, and key AI infrastructure manufacturers—areas where the cost of AI replication is extremely high, and the intrinsic human technical value is difficult for AI to supplant. Second is low technological obsolescence, referring to core production capacities that, even with AI advancements, are difficult to replace entirely with software and robots in the short term. The inherent human technical value in these areas is also challenging for AI to overcome, with prime examples being segments of the semiconductor equipment supply chain, chip foundries, and advanced packaging and testing.
The U.S. market's S&P 500 and Nasdaq indices have relied heavily in recent years on a handful of highly-valued tech giants and SaaS software leaders. In contrast, the European market's weighting is more tilted towards "cash flow" and "heavy asset-intensive" industries such as banking, resources, energy, industrials, healthcare, utilities, and defense. Recent market concerns over AI capital expenditures and fears about AI disruption to software and white-collar jobs have instead made these sectors more attractive. This is reflected in the frequent leadership of European mining, semiconductor equipment, utilities, consumer staples, and medical device stocks.
The Financial Times recently noted that as AI-related disruptions intensify, heavy-asset sectors like energy and utilities are once again becoming safe havens for capital. Ulrich Urbahn, Head of Multi-Asset Strategy & Research at Berenberg, commented that the February rally in Europe is "driven by the heavy-asset safe-haven effect amid AI fears, solid corporate earnings growth, and positive economic momentum." "We maintain overweight ratings on European and emerging market equities because we believe global new capital will primarily focus on these regions to reduce exposure to the still elevated valuations in the U.S. market, which many investors currently hold," Urbahn added.
Max Kettner, a senior strategist at HSBC, this week increased his "overweight" rating on European stocks, stating that investors have become overly focused on AI-related trades. Kettner said, "We might be missing the point that the economy is actually experiencing a real cyclical recovery. Smaller, manufacturing-driven economies have started to show genuine signs of recovery over the past two months." According to statistics from EPFR Global cited by Bank of America strategists, European equity funds attracted inflows of $3.2 billion in the week ending Wednesday, recording a fourth consecutive week of net inflows. Year-to-date, investors have poured $18 billion into equity funds focused on the European market.