Europe’s Stock Rally Is Finally Justified—Here’s What’s Driving It (And The One Risk To Watch)

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(SeaPRwire) –   By: Christian Pierce

For years, European stocks were the overlooked stepchild of global markets—cheap, yes, but seen as too slow, too tied to old-world industries to compete with the US tech juggernaut. Now, they’re firing on all cylinders, and the rally isn’t just a flash in the pan. Yet skepticism lingers: can Europe really keep up with the US long-term? That’s the core tension driving today’s market moves.

The numbers tell a clear story. The Stoxx Europe 600 Index gained every day last week—its longest streak since June. It’s up 11% this year, with Germany’s DAX, France’s CAC 40, and Italy’s FTSE MIB hitting all-time peaks. About 75% of Stoxx 600 constituents trade above their 200-day moving average, near a decade high. Europe Inc. reported 17% earnings growth—its best in four years—and economic momentum hasn’t been this strong since March 2023. Fund flows are shifting too: a Bank of America survey shows net 2% of managers are now overweight European equities, a flip from 15% underweight in June. Citi found Europe was the only major region with meaningful risk appetite improvement in late July. AI is a big driver: ASML and Infineon are up over 60% this year, leading the Stoxx 600. A BofA basket of European AI adopters (like ABB, Standard Chartered, E.On) is up 14%—beating the 3% gain for US hyperscalers. Banks are also shining: the Stoxx 600 Banks index is up 22% this year.

Here’s the commercial loop at play: investors are tired of the volatility in US tech. They’re looking for diversification—cyclical sectors like banks and industrial goods in Europe offer that. AI isn’t just a US game anymore; European firms are either building the tools (like ASML) or using AI to boost margins (like ABB). The valuation gap between Europe and the US is the smallest in four years (15x forward earnings for Stoxx 600 vs S&P 500). The end-game? Europe’s rally will continue as long as earnings stay strong and geopolitical tensions (like US-Iran) remain cool. But Fed rate hikes could derail it. So investors should keep their AI picks but add cyclical European stocks to their portfolios—this mix will help weather any shocks.

Author bio: Christian Pierce, chief financial columnist and markets commentator with 15+ years of analyzing global equity trends and market dynamics.