European equity markets extended their rally on the first trading day of 2026, with benchmark indices pushing to fresh record highs despite thin liquidity following the New Year holiday. Gains were led by defense stocks, underpinned by persistent geopolitical tensions and expectations of increased military spending across the region. The STOXX 50 climbed 0.7% to a new all-time high of 5,830 points, while the broader STOXX 600 rose 0.4% to a record 595 points.
The strong start to the year follows a robust performance in 2025, when the STOXX 50 advanced about 18% and the STOXX 600 rose 17%, marking their best year since 2021. Last year's rally was driven by falling interest rates, Germany's fiscal stimulus, and a rotation out of richly valued US technology stocks. Looking ahead, investors are searching for fresh catalysts, with close attention on the US interest rate outlook, while geopolitical developments remain a key backdrop for market sentiment.
Source: Trading Economi
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