European stock markets now show their strongest economic momentum since March 2023, coupled with a 17 percent earnings growth rate — the best in four years for the region. Fund managers consider the rally more durable than previous short-term trades.
The Stoxx Europe 600 has rallied 11 percent this year, posting daily gains for a full week in its longest streak since June. The German DAX, French CAC 40 and Italian FTSE MIB have all reached all-time peaks.
The breadth is notable: approximately 75 percent of the Stoxx 600's components are trading above their 200-day moving average, near the top of the past decade's range.
Fund manager sentiment reflects the shift. A Bank of America Corp. survey showed a net 2 percent of fund managers are now overweight European equities, a sharp reversal from June, when 15 percent were underweight the region.
"There is definite excitement about Europe," said Helen Jewell, international chief investment officer for fundamental equities at BlackRock Inc. "The region's resilience has surprised the market and demand remains a lot firmer than had been expected."
Citigroup Inc. analysis found Europe was the only major region to record a meaningful improvement in risk appetite during the final week of July.
The rally has moved beyond the previous draw of European stocks being cheap relative to U.S. markets, with improved fundamentals now driving capital. "With the balance of risks tilted to earnings beating expectations for this quarter, we think now is the time to review and potentially add to European equities," said Mark Haefele, chief investment officer at UBS Global Wealth Management.
Geopolitical factors have also supported sentiment. Cooling hostilities between Washington and Tehran have boosted investor confidence, and oil prices have declined from their July peak, easing inflation concerns. A full reopening of the Strait of Hormuz remains uncertain and could affect global energy flows.
"Investor sentiment was being hampered by geopolitics, but as that clears up, it will unlock more demand for regional stocks," said Beata Manthey, head of European equity strategy at Citigroup.
Artificial intelligence investment is also driving gains. As initial AI spending shifts toward profitability, companies using AI platforms to expand margins are attracting capital. ASML Holding NV and Infineon Technologies AG have each jumped more than 60 percent in 2026 and rank among the largest drivers of the Stoxx 600's performance. A Bank of America basket of European AI adopters includes industrial group ABB Ltd.
