European Stocks Rally on Strong Earnings and Economic Growth

European stock markets are demonstrating a strong performance, attracting significant interest from money managers who anticipate this rally to be sustained rather than a fleeting trend. This upward momentum is supported by a confluence of positive indicators, including robust earnings reports, accelerating economic growth, favorable sentiment surveys, and increased fund flows, signaling a substantial shift in the European equities landscape. The Stoxx Europe 600 Index, a key benchmark, recorded its longest daily winning streak since June, gaining for an entire week. Helen Jewell, international chief investment officer for fundamental equities at BlackRock Inc., noted a palpable excitement surrounding Europe, highlighting the region's surprising resilience and firmer-than-expected demand. Historically, European stocks were attractive due to their lower valuations compared to US counterparts. However, the current rally is increasingly underpinned by improved fundamentals. European companies (Europe Inc.) have reported their best earnings growth in four years, reaching 17%, coupled with the strongest economic momentum observed since March 2023. Mark Haefele, chief investment officer at UBS Global Wealth Management, suggests that with the balance of risks favoring earnings exceeding expectations this quarter, now is an opportune moment for investors to re-evaluate and potentially increase their allocations to European equities. Investor sentiment, as reflected in surveys, shows a marked improvement. A recent Bank of America Corp. survey indicated that a net 2% of fund managers are now overweight European equities, a significant turnaround from the 15% who were underweight in June. Furthermore, analysis by Citigroup Inc. identified Europe as the sole major region to experience a meaningful enhancement in risk appetite during the final week of July. This positive sentiment is setting the stage for equity indexes to continue their record-breaking performance into the second half of 2026. The Stoxx 600 has already appreciated by 11% year-to-date, with prominent regional indices such as the German DAX, French CAC 40, and Italian FTSE MIB reaching all-time highs. The breadth of this rally is also noteworthy, with approximately 75% of the Stoxx 600's constituents trading above their 200-day moving average, a level near the upper range observed over the past decade. This broad-based strength suggests a healthy and sustainable market expansion.