European Stocks Surge 10% in Q2, Best Quarter in Five Years, Led by Tech Sector
Taylor Wilson
The STOXX Europe 600 gained 10.05% in Q2, its strongest quarter since October 2020, closing at a record 641.73; AI demand and falling oil prices drove the rally, but the rate path and earnings season will test whether it can last.
How big was the tech rally, and who led it?
The tech sector surged over 30% in Q2 — its largest quarterly gain since October 2001 — making it the standout winner of the quarter.
Among constituents, ASML rose ~6.8%, Infineon gained ~4.4%, and STMicroelectronics added 1.4%. Siemens Energy, an AI-infrastructure equipment maker, climbed 5.6% after reaffirming strong demand on its earnings call.
This means → capital flowed first to chipmaking equipment and energy infrastructure, not software — Germany's SAP fell ~1.9% and France's Capgemini dropped 2.9%, a clear hardware-versus-software divergence.
How did falling oil prices reshape sector rotation?
After the U.S.–Iran ceasefire deal, oil prices fell back to pre-conflict levels. The energy sector lost over 10% in Q2.
But zoom out to H1: the U.S.–Israel–Iran conflict in late February had sent oil prices sharply higher, leaving oil-and-gas stocks up over 20% for the half. In plain terms = Q1's conflict-driven gains were partially given back in Q2, but the net for the half is still positive.
Autos were the worst-performing European sector in H1, down nearly 20% — parts-supply disruptions from the Strait of Hormuz blockade have yet to fully resolve.
Beyond tech and energy, which sectors stood out?
Industrial metals rose on supply concerns, lifting the basic-resources sector over 16% in H1.
Travel stocks rebounded nearly 20% in Q2 as geopolitical tensions eased — the biggest quarterly gain since January 2023. Banks gained over 20% in Q2, with June alone up more than 6%.
Spain's Ibex 35 and Italy's FTSE MIB both posted their largest single-quarter gains in over five years. This reflects a broad risk-appetite recovery, not a tech-only story — southern European markets rode the same wave.
Are European valuations really cheaper than the U.S.?
J O Hambro portfolio manager Rob Lancastle argued: "You don't have to pay an excessive premium for growth … compared with U.S. tech or Asian semis, European companies offer quite a lot of value opportunities."
This means → even after a 10% rally, some institutions still see European valuations as relatively reasonable — the buy case is not yet exhausted.
Deutsche Bank strategists forecast European corporate earnings growth of 14%, two percentage points above the consensus estimate.
What is the biggest uncertainty for H2?
Capital.com analyst Kyle Rodda cautioned: "Whether this price action is just noise or signal will become clearer in the coming days and weeks."
Per LSEG data, traders now expect European rates to rise by another 25 basis points this year. At the ECB's annual forum, policymakers warned that the oil-price shock will continue to work through the economy.
In plain terms = the rally's fuel — AI demand and lower oil prices — is still present in the short term, but if rates keep climbing, earnings pressure will build gradually, and the upcoming Q2 earnings season is the first real test.
Content is for reference only, not financial advice.