JPM sees rising cross-market correlations in European equities

Investing.com -- J.P. Morgan said cross-market correlations in European equities have been rising through 2025, reflecting a market increasingly driven by macroeconomic forces rather than stock-specific factors.

The brokerage noted that average pairwise correlations (APCs) across European stocks rose notably in the first half of the year before experiencing a modest dip in recent weeks. 

The latest reading shows APCs at 0.37, slightly above their long-term historical average, with a 62% percentile rank, leaving them “delicately poised” but still elevated compared with previous years.

Historically, correlations between stocks climbed during periods of market stress and ease in recovery phases, but J.P. Morgan flagged that this pattern has shifted. 

Correlations have risen even as stock prices increased and macro conditions improved, a break from the traditional inverse relationship. 

The bank’s European Quantitative Macro (BCBA:BMAm) Index (QMI), which has remained in the Recovery phase since May 2024, now shows a positive relationship with APCs.

The report described this as a “new market dynamic” where macro developments and news flow are pushing stocks to move more in tandem.

Sector-level trends reinforced the cross-market picture. Intra-sector correlations, which had fallen in 2024, have been climbing again in 2025. 

Energy and Utilities are among the highest, with Utilities at the 85th percentile and Energy at the 78th percentile. 

Even Information Technology, which remains the least correlated sector at 0.36, has seen correlations rise from earlier lows. 

J.P. Morgan said that most sectors are now around the 60th percentile, suggesting more room for correlations to increase further.

Cross-country movements have also been evident. Average pairwise correlations across European countries stand just below the historical mean, at the 44th percentile. 

However, intra-country correlations have risen across all markets this year, with Sweden, Finland and Germany standing above their long-term averages. 

J.P. Morgan attributed this broad-based pickup to macro events in early 2025, such as shifts in U.S. trade policy, geopolitical tensions and the continuation of AI-driven market themes.

The report stressed that while there has been a slight pullback, the overall direction remains upward.