European Stock Rally Reaches Strongest Momentum in Over 10 Years

The European equity market is experiencing its most pronounced rebound in more than a decade, with the Stoxx 600 index gaining 15.7% from January 1 to January 12, 2026. This performance surpasses gains seen during the post-pandemic recovery phase and reflects improving investor confidence across major economies including Germany, France, and Italy. Market participants attribute the uptick to a combination of resilient corporate profitability and shifting monetary policy expectations. Key benchmarks highlight the breadth of the rally: Germany’s DAX climbed 18.2%, while France’s CAC 40 advanced 16.4%, and the UK’s FTSE 100 posted a 12.9% return. Sectors such as industrials, consumer discretionary, and technology led the advance, with companies like Siemens AG, LVMH, and ASML reporting stronger-than-expected quarterly results. These figures suggest that underlying economic fundamentals remain solid despite lingering concerns about geopolitical risks and energy volatility. The rally coincides with a notable shift in central bank sentiment. The European Central Bank signaled a possible pause in interest rate hikes, with officials noting inflation had moderated to 2.4%—close to the 2% target—by December 2025. This pivot has reduced borrowing costs for firms and boosted market valuations, particularly in capital-intensive industries reliant on long-term financing. Investors are now reallocating funds toward European assets, with net inflows into eurozone equity mutual funds reaching €3.2 billion in the first two weeks of January. The momentum is also influencing other asset classes; European government bond yields have retreated modestly, narrowing spreads between German and Italian debt. As the rally persists, analysts caution that sustained gains may depend on continued macroeconomic stability and disciplined fiscal policies across member states.