European stocks have rallied strongly since March, with the Stoxx Europe 600 up 13% from its low, as unusually strong second-quarter earnings eased fears of stagflation. German DAX earnings rose 11% year on year, the best showing in at least ten quarters, according to Deutsche Bank analysts, while the wider Stoxx 600 recorded earnings growth of 23%.
Analysts cited by Bloomberg describe the season as the best in nearly four years, with miners and industrials booming and European tech outperforming US giants, led by Dutch chip specialist ASML, whose shares are up 57% this year. Foreign investors have also piled in, with European stocks attracting the second-strongest inflows in a decade so far this year.
However, risks remain. European natural gas prices are trading above €60/MWh, levels not seen since the tail end of the 2022-2023 energy crisis, and gas storage is the lowest for this time of year since at least 2009. Meanwhile, some analysts argue that European stocks are not necessarily cheap, with the Euro Stoxx 50's annualised return over the past decade at 11.1% and a price/earnings discount to US shares that some see as insufficient.