After a buoyant start to the week, investors on European stock markets hit the brakes on Tuesday.

The German benchmark index DAX drifted listlessly around the 25,000-point mark, while the EuroStoxx50 posted only a slight gain. "In addition to concerns and uncertainties about future interest rate policy in the United States, the fear of a bursting AI bubble still hangs over financial markets like a sword of Damocles," said Christian Henke from broker IG. "Investors simply see AI investments as too high."

Last week, hefty investment plans from tech giants such as Amazon, Google, Meta, and Microsoft rattled many investors. The companies plan to spend a combined total of around $650 billion in the race for dominance in artificial intelligence (AI). Stock prices on Wall Street as well as in the DAX slumped. It was only at the end of the week that a recovery set in, with the DAX closing back above 25,000 points on Monday. According to Jochen Stanzl of Consorsbank, a breakout above this psychologically important level is only possible if lofty expectations for strong profit growth are met. "Otherwise, the 500 to 600 points gained in recent days (...) could quickly be lost again."

On the corporate side, AI was a hot topic in the insurance sector on Tuesday. The corresponding index dropped by 1.7 percent. In the DAX, Allianz and Hannover Rück shares were among the weakest performers, falling by 2.4 and 1 percent, respectively. According to traders, the stocks reacted to the recent sell-off in shares of US insurance brokers after online insurance platform Insurify launched an AI-powered comparison tool based on ChatGPT. This fueled fears that new AI tools could accelerate upheaval in the industry.

CHEMICAL STOCKS SOAR AFTER GOLDMAN COMMENT

Chemical stocks enjoyed a good day after a positive comment from Goldman Sachs. Although uncertainty and structural headwinds were still being discussed in the European chemicals sector, analysts noted initial signs of economic recovery and improving industrial conditions. Symrise shares led the DAX, gaining as much as seven percent. Analysts upgraded the flavorings manufacturer to "Buy" from "Neutral." Evonik also surged in the MDAX after a buy recommendation, climbing more than five percent. Lanxess shares at times rose by nearly ten percent.

In contrast, TeamViewer's earnings report found little favor. The software company remains cautious for the current year after a modest increase in sales in 2025. Shares plunged by as much as nine percent in the MDAX. TUI also fell by five percent. Despite slightly lower bookings, the travel group still expects "robust" demand for summer holidays.

KERING STOCK IGNITES WITH DOUBLE-DIGIT GAINS

At the Paris stock exchange, Kering shares skyrocketed by as much as 14.4 percent. The French luxury group, whose brands include Gucci and Yves Saint Laurent, saw fourth-quarter sales fall less sharply than feared. "Kering is only at the beginning of a multi-year restructuring process, and the results for fiscal year 2025 should clarify the direction for investors," commented analysts at Deutsche Bank. Kering's quarterly report lifted sentiment in the sector, with the relevant European index gaining up to 2.7 percent.

On the economic front, investors were eagerly awaiting a series of US data releases, hoping for clues about the future interest rate path of the US Federal Reserve. US retail sales for December were due later in the day. The week continues with the labor market report and inflation data on Friday. Investors currently expect a slight decline in the inflation rate, said Henke from IG. Nevertheless, consumer prices are likely to remain above the Federal Reserve's target of two percent. "A strong labor market combined with stubborn inflation stands in the way of further interest rate cuts in the United States," the expert predicted. The dollar index was little changed at 96.87 points, while the euro hovered just above $1.19.

(Report by: Daniela Pegna, edited by Ralf Banser. For inquiries, please contact our editorial team at berlin.newsroom@thomsonreuters.com (for politics and economics) or frankfurt.newsroom@thomsonreuters.com (for companies and markets).