The pan-European STOXX 600 rose about 0.2% on Friday but remained on course for its second consecutive weekly decline. The performance nevertheless contrasts with the sharper deterioration in some global equity markets.
European companies are entering the second half of the year with relatively strong earnings expectations. Companies in the STOXX 600 are expected to report aggregate second-quarter earnings growth of 24.1%, according to LSEG data cited by Reuters.
The region has also attracted fresh capital. European equity funds received $2.44 billion in the week to August 12, representing their largest weekly inflow since February.
The relative resilience is partly linked to Europe's economic performance. Euro-zone business activity accelerated in August, supported by stronger manufacturing orders and renewed export growth. The data suggest that the region has remained more resilient than expected despite the economic disruption associated with the Iran conflict.
European markets also have less direct exposure to some of the AI-driven valuation pressures affecting US technology stocks. That difference may be encouraging investors to broaden allocations beyond the US market.
However, the outlook is not without risks. Brent crude approached $95 a barrel amid tensions around the Strait of Hormuz, while European bond yields remain elevated. Higher energy and financing costs could eventually pressure corporate margins.
For investors, the European market is therefore becoming a relative-value proposition rather than a risk-free alternative.
The next test will be whether improving earnings and economic data can offset the effects of higher energy prices and tighter financial conditions. A sustained improvement could encourage further international capital flows into European equities.
