"Europe Is Inspiring: Should You Bet on a Rally in European Stocks?"

The European stock market is showing steady growth and attracting asset managers who believe the current rally will prove to be sustainable, according to Bloomberg. The pan-European Stoxx Europe 600 index rose every day last week. The region’s resilience has surprised the market: demand remains stronger than expected thanks to improving fundamentals and the broad range of stocks participating in the rally.

The Stoxx 600 Index is currently trading at a P/E ratio—which reflects the relationship between price and expected earnings—of 15, marking the smallest discount relative to the U.S. S&P 500 in the past four years, according to Bloomberg. Market indicators show a major shift in the perception of European assets, the agency notes.

A recent Bank of America survey showed that the net percentage of fund managers with an “overweight” position in European stocks stood at 2%, whereas in June, 15% were underweight. According to Citigroup’s calculations, Europe was the only major region where risk appetite rose significantly during the last week of July, Bloomberg reports.

For a long time, the main advantage of European stocks was simply that they were cheaper than their U.S. counterparts. However, the rally is now driven by fundamental factors: Europe’s corporate sector reported its strongest earnings growth in four years—up 17%—and economic momentum has reached its highest level since March 2023, the agency notes.

This sets the stage for continued record growth in the second half of 2026. Since the start of the year, the Stoxx 600 has risen 11%, and key national indices—the German DAX, the French CAC 40, and the Italian FTSE MIB—have hit new all-time highs. The S&P 500, by comparison, has gained about 14% over the same period.

The market is reevaluating the artificial intelligence sector: investors are shifting capital from expensive U.S. tech giants to European sectors that are adopting AI. As a result, shares of local semiconductor manufacturers, such as ASML and Infineon, have risen by more than 60% this year, while a basket of AI-adopting companies tracked by Bank of America has risen 14%, significantly outperforming U.S. hyperscalers. This basket includes players such as ABB, Standard Chartered, and E.On.

Meanwhile, European banks and industrial companies have become a sort of “safe haven” for investors amid volatility in the IT sector—for example, the Stoxx 600 Banks index has gained 22% since the start of the year.

“Europe is definitely inspiring,” notes Helen Jewell, Global Head of Investments at BlackRock. “The region’s resilience has surprised the market, and demand remains much stronger than expected.”

“The likelihood that companies’ earnings for this quarter will exceed expectations is greater than the risk of disappointing results. Therefore, we believe now is the right time to review and, possibly, increase the allocation to European stocks in portfolios,” said Mark Haefele, Chief Investment Officer at UBS Global Wealth Management.

“Even if the pace of AI growth accelerates again, investors are aware of the volatility in the technology sector. As a result, IT is now viewed as a complementary asset rather than a mutually exclusive one. Investors will hold onto shares of tech giants but diversify their portfolios with cyclical sectors, which plays into Europe’s hands,” predicts Beata Manti, head of European equity strategy at Citigroup.

Despite the positive signals, some market participants remain cautious in their assessment of Europe’s long-term potential compared to that of the U.S. The trend remains positive, but any aggressive moves by the U.S. Federal Reserve could disrupt the growth trajectory of European stocks, warns Ariane Hayate, an analyst at Edmond de Rothschild Asset Management.

For his part, Daniel Murray, an analyst at EFG Asset Management, believes that investor pessimism has gone too far: “You’re starting from a level where positioning was negative, but sentiment is improving rapidly. That’s a very favorable combination for further growth.”

This article was AI-translated and verified by a human editor