European equities pushed higher on Thursday, with the Euro Stoxx 50 posting a solid gain of 0.45%. The rebound was led by a resurgence in cyclical stocks, which outperformed their defensive counterparts by around 30 basis points. After a temporary pullback earlier in the week, momentum-driven strategies returned to favor, signaling renewed investor confidence in risk-on positioning.

One of the standout themes of the session was the strength in defense-related names. This came on the heels of renewed geopolitical discussions, including a call between former U.S. President Donald Trump and Russian President Vladimir Putin. Anticipation around increased defense commitments from NATO following its Brussels meeting also provided a tailwind. Defense stocks rallied, with sector-specific indices climbing by 1.6%, indicating strong investor conviction in the space.

Semiconductors added to the positive tone, riding the coattails of a strong showing from their U.S. counterparts. However, market participants noted that despite solid price action, there was limited corresponding flow activity on the trading desk, suggesting the rally might be driven more by sentiment or algorithmic strategies than broad-based institutional buying.

Not all sectors shared in the optimism. Travel & Leisure lagged significantly, weighed down by a steep decline in Wizz Air shares. The budget airline fell by a staggering 26% after reporting a sharp rise in unit costs, which overshadowed its otherwise impressive capacity growth. The move underscored investor sensitivity to margin pressures even in growth narratives.

From a flows perspective, trading activity painted a nuanced picture. The overall desk tilt was slightly better to buy, with a 52/48 bias. Hedge funds showed a particularly strong appetite for equities, leaning heavily on the buy side with a 73/27 split. Long-only investors, in contrast, remained balanced, perhaps reflecting a more cautious stance amid mixed sector dynamics.

Financials were the most actively traded sector, though flows were two-way and skewed slightly toward selling. Industrials and Miners saw more constructive sentiment, both attracting net buying interest. In the tech space, software stocks were the primary focus, drawing strong demand, while semiconductors also benefited from broader momentum despite limited flow. On the flip side, Healthcare and Consumer Discretionary stocks faced headwinds, with the desk better to sell in both sectors.

As the market adjusts to shifting geopolitical signals and sector-specific catalysts, investors appear to be selectively rotating into areas of perceived strength, while remaining cautious in segments facing cost pressures or valuation concerns.