STOXX at an All-Time High

The pan-European STOXX 600 index reached a historic high on Monday, March 3, 2025, rising by about 1% to 565.18 points. The index, which includes 600 large, mid-sized, and small European companies, had already set a record just days earlier, on February 26, 2025. Since the start of the year, it had gained more than 9%, and looking at its annual performance, STOXX 600 rose by more than 12%, while its five-year performance showed a robust 52% increase.*

*Price development of the STOXX 600 index over the past 5 years. (Source: Investing.com)

The beginning of the new month was also positive for the Euro STOXX 50 index, which includes the 50 largest companies from 8 eurozone countries. On Monday, March 3, it surpassed 5,568 points, breaking its previous all-time high from mid-February 2025. Its performance since the beginning of the year exceeded that of STOXX 600, rising by almost 13%, with a similar annual gain. Looking at its five-year performance, the index grew by more than 70%.*

However, after the market opened on March 4, 2025, both indexes faced corrections due to the implementation of new U.S. import tariffs. STOXX 600 fell to 557.64 points, while STOXX 50 saw a sharper decline to 5,458 points.*

*Price development of the Euro STOXX 50 index over the past 5 years. (Source: Investing.com)

Defense Stocks Driving Growth

The biggest contributors to this growth were defense companies, whose surge in value increased market capitalization by $35 billion, according to Bloomberg. Some even reached new highs. Among them was the German multinational company Hensoldt, which recorded the largest gain, rising by a robust 37.5%, followed by the French company Thales, which saw a 25% increase.* Double-digit growth was also evident in companies such as Dassault Aviation, Rheinmetall, British BAE Systems, and the Italian supplier Leonardo.*

Summit to Support Europe and Ukraine

Key events for the European defense sector took place during the first weekend of March, boosting expectations that Europe could position itself as a peacemaker between Ukraine and Russia. Europe's role in peace negotiations gained importance after Ukrainian President Volodymyr Zelensky's meeting with U.S. President Donald Trump at the end of February, which ended in failure. A crucial meeting took place on Sunday in London, attended by British Prime Minister Keir Starmer, French President Emmanuel Macron, and the Ukrainian President. The summit resulted in the formation of a "coalition of the willing"—a group of countries willing to send peacekeeping forces to Ukraine to monitor and maintain stability. The EU will now present the plan and request security guarantees from the United States.[1]

More Money for Defense

Additionally, investors were enthusiastic about the idea of increasing EU defense spending, a necessity that European leaders have been emphasizing for a long time. European Commission President Ursula von der Leyen, speaking at the summit on March 4, 2025, announced a new plan called ReArm Europe, which includes the allocation of additional EU defense funds, a new $150 billion credit instrument, and several other projects.[2] Keir Starmer, who described the peace negotiation efforts as "a crossroads in history for Europe," approved a plan to raise military spending to 2.5% of GDP by 2027. Czech Prime Minister Petr Fiala, according to CNBC, stated that EU member states should finance defense at a minimum level of 3% of GDP.[1][3] Germany also recognizes the urgent need to increase spending, and according to Reuters sources, it plans to establish a €400 billion ($415 billion) defense fund, although this has not yet been approved.[4]

Is Inflation Cooling Down?

A positive market sentiment was also driven by preliminary eurozone inflation data. The annual inflation rate fell to 2.4% in February 2025. While slightly exceeding expectations of 2.3%, it still declined from January’s six-month high of 2.5%. A drop was also recorded in core inflation, which excludes volatile energy and food prices. Preliminary data showed that core inflation reached its lowest level in three years at 2.6% in February.[5]

Good Outlook for Stocks

The European stock market is gaining growing confidence from global investors, as confirmed by the Fund Manager Survey from Bank of America. Data revealed that 76% of surveyed fund managers believe in long-term stock market growth, while 66% expect short-term gains. The majority of respondents forecast that the European stock market could be the world's best-performing market this year.[2] According to Euro News, key factors include easing inflationary pressures, expected interest rate cuts by the European Central Bank, and stimulus measures from Germany’s new government. A potential peace agreement between Ukraine and Russia could further reduce uncertainty in Europe. Additionally, European stock prices are often lower and less volatile than their U.S. counterparts. According to the survey, the financial and banking sectors are expected to be the most attractive, while the automotive and retail sectors are lagging behind. However, geopolitical, trade, and fiscal risks remain significant concerns.[6]

Conclusion

The strong growth in the European stock market was primarily driven by the defense sector, which benefited from rising military expenditures, as advocated by several key political leaders. Cooling inflation and positive investor expectations added to the optimism. However, potential corrections should be taken into account, as they could be triggered by macroeconomic data, as well as geopolitical and trade uncertainties. Therefore, it is essential to monitor both current trends and the broader economic context.[3]

Stock price development of Hensoldt over the past 5 years. (Source: Google Finance)* https://bitly.cx/PPx5W
Stock price development of Thales over the past 5 years. (Source: Google Finance)* https://bitly.cx/Dsxnb
Stock price development of Dassault Aviation over the past 5 years. (Source: Google Finance)* https://bitly.cx/A05xC
Stock price development of Rheinmetall over the past 5 years. (Source: Google Finance)* https://rb.gy/w0572v
Stock price development of BAE Systems over the past 5 years. (Source: Google Finance)* https://bitly.cx/fVDC6
Stock price development of Leonardo over the past 5 years. (Source: Google Finance)* https://bitly.cx/qMGN

* Past performance is not a guarantee of future results.

[1,2,3] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate or influenced by changing economic conditions. These statements are not guarantees of future performance and include risks and uncertainties that are difficult to predict. Actual results may differ significantly from those expressed or implied in any forward-looking statements.

[1] https://www.cnbc.com/2025/03/03/europe-looks-to-broker-peace-for-ukraine-after-the-white-house-fiasco.html

[2] https://www.investicniweb.cz/von-der-leyenova-dohodli-jsme-se-na-novem-uverovem-nastroji-v-objemu-150-miliard-eur-bude-urceny-k

[3] https://www.cnbc.com/2025/03/02/uk-france-and-ukraine-agree-to-work-on-ceasefire-plan-for-russias-war-in-ukraine.html

[4] https://www.yahoo.com/news/exclusive-germany-weighs-special-funds-122137996.html

[5] https://tradingeconomics.com/euro-area/inflation-cpi

[6] https://www.euronews.com/business/2025/02/22/why-are-seasoned-investors-betting-big-on-european-equities