European stocks retreated from record highs, weighed down by declining banking shares. Ferrari NV issued disappointing performance guidance that left investors disappointed, with the stock posting its largest intraday decline since 2016.

The Stoxx Europe 600 index closed down 0.4%. HSBC Holdings plummeted 5.4% after the bank previously proposed privatizing Hang Seng Bank through a scheme of arrangement, valuing the latter at $37 billion.

Germany's DAX index hit fresh records, highlighting the recent strong performance of European markets, benefiting from optimism surrounding artificial intelligence and the resilience of the U.S. economy.

Meanwhile, political risks from France kept some investors cautious. French President Macron indicated he would appoint a new prime minister before Friday evening, a move that could help curb the market selloff triggered by Prime Minister Lecornu's resignation this week. France's CAC 40 index has already recovered most of its weekly losses.

"The possibility of early elections remains quite high," said Kevin Thozet, a member of Carmignac Gestion's investment committee. "There may be some breathing room in the short term, but from a medium-term perspective, France's fiscal and growth outlook remains weak, so I don't think there's much upside potential."

Ferrari NV shares crashed 15% as the cautious forecasts announced at its investor day disappointed investors.