European stocks closed lower, ending three weeks of gains as investors booked profits in technology and commodity-linked shares due to concerns over rising inflation and interest rates on the back of a jump in bond yields.
The benchmark European stock index fell 1.6%, and shed 2.4% for the week — its first weekly loss this month — with technology stocks losing the most as they continued to retreat from 20-year highs.
On the day, resource stocks were the softest-performing European sectors, tumbling 4.2% from a near 10-year high in their worst session in five months.
“Equity markets across the US and Europe are quite expensive now — and with bond yields constantly rising, the fixed-income market is proving to be more attractive than the riskier equity market,” said SocGen strategist Roland Kaloyan.
“Investors are actually looking at the pace at which yields drop, and the current speed is quite concerning for equity markets.”
US and eurozone bond yields retreated slightly, but stayed close to highs hit this week as investors positioned for higher inflation this year.
Yields were also set for large monthly gains.
Sectors such as utilities, healthcare, and other staples — usually seen as proxies for government debt due to their similar yields — lagged behind their European peers for the month as investors sought better returns from actual debt.
Still, the benchmark Stoxx-600 gained in February, helped by a rotation into energy, banking, and mining stocks on expectations of a pickup in business activity following vaccine rollouts.
Travel and leisure was the strongest sector in February as investors bet on an economic reopening boom.
Banks also outperformed their peers, thanks to higher bond yields.