European Indices DAX 40 and Euro STOXX Hit Record Highs

The DAX 40 and Euro STOXX 600 indices, the leading stock indices for Germany and Europe respectively, closed at record highs on Tuesday, 28 January. The uplift came thanks to a rebound in market sentiment after a sell-off on Monday led by American tech stocks.

The pan-European benchmark closed Tuesday’s session 0.4% higher at 531.60, surpassing its previous record, set last week, and bringing its total gain for January to 5.4%. At the same time, Frankfurt's DAX index also reached a new all-time high, climbing 0.7% to 21,430.58. (Source: London South East)

The Euro STOXX 50, a more concentrated index of 50 companies (as opposed to the 600 companies in the STOXX 600 index) also gained ground, coming just short of the record high reached on Friday 24 January.

Euro STOXX 50 Performance Chart

The daily candlestick chart for the Euro STOXX 50 index shows a breakout in January, taking its value above the long-standing resistance level of 5,100. This resistance was first met in April 2024 following a strong positive trend in the index that began in October 2023 and carried it over 1,000 points (or approx. 25%), from below 4,000 to above 5,000.

This breakout over the resistance level comes as a positive signal according to technical analysis, since it shows bullish investors have taken control of the market from their bearish counterparts, whose selling had previously been able to keep the price beneath the resistance. (Source: Investopedia)

What is Causing the Rise in European Stocks?

Expected ECB Rate Cuts

One possible catalyst for the rise in European shares is the expectation for a further reduction in interest rates in the eurozone by the European Central Bank (ECB) at its meeting on Thursday this week. Equity markets tend to rise when interest rates are falling.

The European Central Bank is expected to cut its key interest rate by 0.25 percentage points to 2.75% in its first policy meeting of 2025, continuing its easing cycle amid economic uncertainty and persistent inflation in the price of services.

Comparable Valuations

After the S&P 500 index ended 2024 up by a massive 23%, its second year in a row of over 20% gains, some investors could be looking for ‘cheaper’ valuations in European stock markets where gains were not so stellar.

In fact, according to the Financial Times, without Nvidia (NVDA), the S&P 500’s returns since 2022 would trail the eurozone’s MSCI EMU Index since the bull market began.  

This highlights how the S&P 500’s rally is largely AI-driven, with Nvidia at its core, while eurozone stocks have performed well despite lower tech exposure and slower growth.

This could go some way to explain Monday’s heavy sell-off in US markets after the release of China’sAI chatbot DeepSeek.

Conclusion: Can European Stocks Keep Rising?

Record highs in European stock indices may reflect optimism around expected ECB rate cuts and attractive valuations compared to the AI-driven US rally but - as always - some risks do remain. A global equity downturn or further weakness in eurozone economies could challenge this momentum, leaving recent gains short-lived.