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European stock markets posted strong gains in Q1 2025, with the STOXX Europe 600 outperforming the S&P 500 by nearly 9%, supported by Germany’s EUR 500 billion stimulus and a shift in global capital flows. Defense stocks like Rheinmetall (+119%), Thales (+78%), and Leonardo (+72%) led the rally, while banks performed well due to limited exposure to trade risks. Consumer sectors remained weak amid cautious spending. The Euro rose sharply but still faces pressure from lower growth and interest rate gaps with the US. Looking ahead, European companies with strong global sales and competitive valuations are well positioned to outperform in an environment of rate cuts and a softer Euro.