Quality strikes back: inside Europe’s rotation

Quality at work: three case studies

Three prints did the heavy lifting. LVMH jumped 12% on 15 October as growth returned in the third quarter. ASML rose 3% after stronger-than-expected bookings tied to artificial intelligence capacity. Nestlé rallied 9.3% on 16 October as investors cheered a reset under incoming leadership. The market read these as proof points that quality with global revenues still compounds when execution shows up.

These three are bellwethers. LVMH sets the tone for luxury demand and pricing power. ASML is the capacity gatekeeper for semiconductors. Nestlé anchors staples with scale and resilient cash flows. Their beats and guidance shape sector sentiment fast, so the rotation’s credibility rests on their delivery.

One week that moved the narrative

Leadership concentration is risky when it rests on narrow momentum. This rotation looks broader. The winners span luxury, chips and staples, and the drivers are business-specific rather than a single macro factor. That lowers the chance that one data point breaks the whole trade. For portfolios, the lesson is clear. The market is paying for delivery, cash-flow durability and global pricing power.

Earnings beat scepticism. LVMH’s update ended a two-quarter lull and lifted the whole luxury complex. Expectations were muted after a soft first half and stop-start China demand. The bar was low: stabilisation, clean inventory, and fewer promotions. The update delivered exactly that, with growth back in the third quarter and firmer full-price sell-through. Read-across: luxury pricing power still works when the product mix is right. That lifted peers and improved confidence in holiday sell-through.

AI capex ripples through the stack. ASML’s orders surprised on the upside, signalling that both foundries and memory makers are locking in tools to serve data-centre demand. Management framed demand as multi-year, with tool shipments and grid hookups now the real bottlenecks. Read-across: the capital-expenditure flywheel is intact. When ASML’s order book improves, suppliers and chipmakers usually follow. Supply chains read this as a capacity green light into 2026.

Staples reset and refocus. Nestlé’s 9.3% single-day gain flagged that cost discipline and portfolio optimisation can still unlock value in a slower-growth world. The market wanted a cleaner plan and tighter cost control from incoming leadership. It got a reset: sharper focus, faster decisions, and clearer priorities. Read-across: staples with scale and discipline can still re-rate without a growth boom.

Risks and early warning signs

China demand. A setback in travel or local consumption would dent luxury and staples. Track monthly mainland sales signals from listed peers and management commentary.

AI capex timing. Any push-out of data-centre projects, grid connections or memory expansions would filter quickly to tool orders. Follow order phasing and capex updates from top customers.

Policy and rates noise. Trade headlines can shift factor leadership in days. A stronger dollar or a jump in long yields would challenge globally exposed quality stocks.

GRANOLAS crowding. Positioning is heavy. A rates back-up, EUR strength, or small earnings misses could force de-crowding. Watch valuation spreads, factor flows, futures and ETF positioning, and guidance revisions.

Investor playbook

• Use LVMH, ASML and Nestlé as bellwethers: LVMH for luxury demand, ASML for the chip cycle, Nestlé for staples resilience.
• Follow delivery, not labels. Prioritise companies showing beat-and-raise patterns and clean sell-through.
• Use earnings-day reactions as signals. Outsized day-one moves often precede multi-week leadership.
• Watch cadence, not just backlog. Delivery slots at ASML; full-price sell-through at LVMH; portfolio and margin actions at Nestlé.
• Expect dispersion. This earnings season will separate steady compounders from the rest.
• Keep an eye on the usual spoilers: China consumer cadence, power and grid delays for data centres, and interest rates movements.

The loop closes

Europe’s baton is moving from narrow momentum to broad, repeatable delivery. LVMH showed full-price demand still pays. ASML confirmed the AI capex engine is alive. Nestlé proved scale plus discipline can re-rate. That mix matters more than a soft euro or a kinder yield curve.

What keeps this into November is simple. Clean holiday sell-through at top luxury houses. Order cadence and on-time tool shipments across the chip stack. Portfolio focus and margin progress at the staples leaders. Healthcare remains nuanced, with obesity and oncology winners offset by pricing and patent cycles.

For investors, the homework is clear. Track delivery cadence, not slogans. Watch guidance tone more than macro headlines. Use earnings-day reactions as live signals of who is leading now. The loop closes where it started: in a noisy backdrop, real results beat narratives.