European equities fell on Wednesday after Federal Reserve Chair Jerome Powell cautioned that U.S. stocks remain “fairly highly valued,” reinforcing investor concerns over stretched valuations and uncertain monetary policy.

The STOXX 600 slipped around 0.3%–0.4%, dragged lower by banks and financials, with Deutsche Bank, Barclays, and others losing 1–2%. Major indices, including Germany’s DAX, also posted modest losses. Powell’s remarks, paired with his cautious stance on interest rate cuts, strengthened the U.S. dollar and weighed on global risk sentiment.

Amid the broader downturn, defense and aerospace stocks rallied. German defense contractor Renk jumped nearly 5%, buoyed by ongoing European rearmament efforts and a strong order backlog. Investor confidence was further boosted after Franco-German group KNDS raised its stake in Renk from about 6.7% to 15.8%, underscoring confidence in the company’s long-term prospects.

The divergence highlights a market shift: financials and rate-sensitive sectors came under pressure, while defense stocks continued to attract inflows amid geopolitical tensions and rising military budgets.