Why the CAC 40 Surge Could Redefine Your European Playbook

• US Supreme Court’s 6‑3 decision on global tariffs ignited Europe’s strongest weekly rally since January.
• LVMH and Hermès led luxury gains, while Airbus and Saint‑Gobain rallied on industrial optimism.
• Air Liquide’s profit beat and margin upgrade signal a new earnings catalyst for chemicals.
• Mixed macro data—near‑stagnant PMI and cooling oil—were eclipsed by policy‑driven sentiment.
• Investors now face divergent paths: ride the trade‑relief wave or brace for a pull‑back as fundamentals reassert.

You missed the biggest rally in Europe this week, and it could reshape your portfolio.

Why the CAC 40’s Record Close Is More Than a One‑Day Spike

The French benchmark leapt 1.4% to a fresh high of 8,516, capping a week‑long advance of roughly 1.3%. The catalyst wasn’t earnings; it was a legal shock‑wave from across the Atlantic. The US Supreme Court struck down President Trump’s use of emergency powers to impose global tariffs, ruling the move unconstitutional. For trade‑sensitive French conglomerates, the decision erased a looming risk premium and unleashed a wave of buying.

In practice, the ruling removed the threat of retaliatory duties that could have hit luxury exports, aerospace contracts, and industrial supply chains. The market reaction was swift: LVMH surged 4.4%, Hermès climbed 3.6%, Airbus added 1.4%, and Saint‑Gobain rallied 3.1%. These moves illustrate how political risk can dominate price action, especially when the policy shock is binary and clear‑cut.

Luxury Titans Thrive: LVMH, Hermès, and the Trade‑Relief Effect

Luxury is the most trade‑exposed segment of the CAC 40. Both LVMH and Hermès rely heavily on US and Asian consumers, who together account for over 60% of their revenue. The Supreme Court decision removed the specter of a 25% tariff on high‑value goods, instantly improving profit forecasts.

Historically, luxury stocks have rallied on trade‑win news. In 2018, after the US‑EU trade talks reached a tentative agreement, LVMH’s share jumped 7% in a single session. The pattern repeats: when tariff uncertainty recedes, cash flow expectations rise, driving multiple expansions. For investors, the key takeaway is timing. The current price rally may already price in most of the tariff relief. A disciplined entry point could be a pull‑back toward the 50‑day moving average, which now sits near 8,300.

Industrial Upside: Airbus and Saint‑Gobain Ride the Sentiment Wave

Airbus, a bellwether for European manufacturing, rose 1.4% as order books steadied. The company’s exposure to US defense contracts, previously at risk of higher duties, is now clearer. Saint‑Gobain, a diversified building‑materials group, saw a 3.1% lift, reflecting expectations that raw‑material costs will not be inflated by trade barriers.

From a sector perspective, the industrial rally aligns with a broader trend of “re‑globalisation” where firms reassess supply‑chain resilience. The European industrial index has outperformed the broader market this quarter, up 2.8% versus the CAC’s 1.9% gain.

Air Liquide’s Earnings Surprise: A Blueprint for Chemicals

Air Liquide’s shares jumped 4.6% after reporting a 6.4% rise in 2025 net profit and raising its margin targets through 2027. The company highlighted stronger demand for industrial gases in clean‑energy projects and semiconductor manufacturing. The margin upgrade—projected to rise from 20.5% to 22%—signals pricing power in a sector often viewed as low‑growth.

Technical note: Margin targets refer to the proportion of revenue that turns into profit after operating expenses. Raising this figure usually means the firm can command higher prices or achieve cost efficiencies, both bullish signals. Air Liquide’s performance offers a template for other chemicals firms: leverage the macro‑tailwind of green‑energy transition while maintaining disciplined capital allocation.

Macro Backdrop: PMI Stagnation, Oil Cooling, Yet Markets Soar

Even as the French composite PMI slipped to 49.9—just below the 50‑point growth threshold—equities rallied. PMI measures activity in the private sector; a sub‑50 reading indicates contraction. The paradox underscores how policy news can dominate over traditional economic indicators. Oil prices softened, pulling TotalEnergies down 1.5%. Energy stocks, however, remain a secondary concern for a market driven by trade‑policy optimism. The decoupling of commodity trends from equity performance is a reminder that sector rotation can be driven by narrative rather than fundamentals, at least in the short term.

Investor Playbook: Bull vs. Bear Scenarios

Bull Case: The tariff relief is permanent, and the market continues to price in higher earnings for luxury and industrial firms. Expect the CAC 40 to test 8,800 by Q2, with LVMH and Hermès leading the upside. Investors should consider adding to positions on pull‑backs, using stop‑losses just below the 50‑day moving average.

Bear Case: If the US revisits trade policy or if global growth stalls, the rally could reverse. A sustained PMI contraction below 48 would suggest deeper demand weakness, potentially triggering a sector‑wide sell‑off. In this scenario, defensive positions in utilities and high‑yield European banks (e.g., BNP Paribas) could preserve capital.

Bottom line: The CAC 40’s surge is a policy‑driven rally that offers both entry opportunities and risk of rapid unwinding. Align your exposure with your risk tolerance, and keep a close eye on any US trade‑policy signals that could reignite volatility.