NEW YORK – Europe’s leading stock index, the Stoxx 600, closed at an all-time high on Thursday, surpassing its previous record set in January 2022 and reflecting growing investor optimism about the region’s economic recovery.
The broad index of European stocks finished up 0.82% at 495.1 points, breaking through the prior peak of 494.35 reached last year. Stocks across the continent rallied on positive earnings reports and data indicating the euro zone economy is strengthening despite some lingering headwinds.
The milestone comes as investors are rotating into European equities, attracted by relatively lower valuations compared to the rallying U.S. market. Analysts say Europe offers exposure to global trends in areas like healthcare and technology through internationally focused large-cap stocks.
“European equities have attracted increasing attention from investors in recent weeks as the U.S. has charged ever higher, leaving valuations of global companies listed in Europe looking ever more attractive,” said Lindsay James, investment strategist at Quilter Investors. While the European economy faces headwinds on several fronts — a still weak industrial base, recession in Germany, and the looming presence of Donald Trump and his talk of tariffs — many of the largest stocks in the index are globally facing, and benefit from far broader trends such as healthcare spending and drug innovation.”
Driving the gains on Thursday was optimism following better-than-expected euro zone business activity data for February. Though manufacturing remained in contraction, service sector activity returned to growth during the month, according to a preliminary purchasing managers’ index (PMI) report. The composite PMI rose to 51.6, indicating modest expansion and easing concerns about recession.
“The improvement provides hope that the region could escape recession, even if growth remains fragile,” said David Madden, market analyst at CMC Markets UK. “The ECB will be delighted with the latest PMI reports as it suggests the economy is rebounding.”
The economic data bolstered European stocks already buoyed by a busy day of corporate earnings. Strong reports from companies like Rolls-Royce, Nestle, Lloyds and others outweighed disappointing results from the likes of Barclays Bank.
Rolls-Royce shares jumped 7.8% after the British engine maker affirmed its turnaround efforts remain on track. The company more than doubled its annual profit in 2023 on improved civil aerospace demand and forecast momentum continuing this year. Rolls-Royce has cut costs and stabilized finances after struggles during the pandemic.
Meanwhile, Nestle gained 3% as the Swiss consumer goods giant reported better-than-expected sales growth last year, fueled by pricing power. Swiss insurer Zurich and Spanish utility Iberdrola also rose on positive earnings news.
On the downside, Barclays slumped 6.5% as the British bank’s profit fell short of estimates amid a slide in fixed income trading revenue. But the broader European banking sector shook off the miss, with shares of HSBC, BNP Paribas and others climbing as analysts said Barclays’ issues appeared company specific.
National indexes across Europe joined the Stoxx 600 in record territory. Germany’s DAX added 1.47%, France’s CAC 40 rose 1.27% and Britain’s FTSE 100 gained a more modest 0.3%. Regional markets took their cue from the euphoric session on Wall Street, where the S&P 500 hit a new intraday peak led by surging chipmaker Nvidia.
Investors are also keeping an eye on corporate dealmaking. Utility Veolia jumped 6% after finalizing its hostile takeover of rival Suez, creating a French champion in water and waste management. Shares of Swedish industrial gas company Indutrade soared 17% on news U.S. rival Carrier Global offered to acquire the firm.
While optimism reigns for now, Europe faces no shortage of lingering uncertainties. Rising inflation and interest rates could squeeze consumers and dampen growth. Russia’s ongoing war in Ukraine has disrupted energy supplies and created ripple effects in commodities and agriculture markets.
Nonetheless, Peter Garnry, head of equity strategy at Saxo Bank, believes European stocks have further room to run compared to pricier U.S. equities.
“The great rotation trade out of the U.S. into Europe is gathering momentum,” Garnry wrote in a research note this week. “Europe’s cyclical segment has had a strong run but we think this has further to go as positioning remains light and earnings revisions have only just begun ticking higher.”
Thursday’s record suggests investors are looking beyond the region’s challenges and toward a brighter future. With reasonable valuations and improving economic data, European stocks appear poised to build on their newly minted all-time high.
