- Banking sector gains 67% in 2025, best since 1997
- Spain's IBEX outpaces peers, gains nearly 50% this year
Dec 31 (Reuters) - European shares slipped slightly on the final trading day of 2025, but clocked their strongest year since 2021, powered by falling interest rates, Germany's fiscal boost, and a rotation out of lofty U.S. tech names.
The pan-European STOXX 600 edged down 0.1% to 592.19. The dip did little to dull a standout 2025 run, with the index chalking up 16.66% for the year, while Wall Street's S&P 500 was on track to finish 2025 up 17%.
Banks and defence were clear winners in Europe's rally. Lenders powered the benchmark higher, with the sector up 67% in 2025, its best year since 1997, on a pickup in dealmaking, a friendlier regulatory backdrop and a relatively steady economic pulse.
Defence stocks also notched a string of new highs in 2025, despite a dip since October. The sector climbed about 56.5% this year, lifted by pledges of higher military spending across the region.
Investors broadened their bets beyond the United States, hunting for cheaper corners of Europe as White House trade uncertainty and patchy economic signals kept the outlook uneven.
The media sector has been the weakest performer in 2025, dropping 15% as sluggish demand for ads, macroeconomic uncertainty and AI-driven disruption weighed on earnings growth. J.P. Morgan, however, has attributed the underperformance also to misplaced investor concerns and ignoring pockets of strength.
"I think the falling U.S. dollar and White House volatility have led investors to seek value elsewhere and diversify against AI risks, benefiting European markets through a cautious rebalancing," said Danni Hewson, head of financial analysis at investment platform AJ Bell.
"This European market renewal should continue into early 2026, though volatility will persist."
On Wednesday, however, most sectors closed in the red, with the retail subindex declining 0.3%, while personal goods and households and the luxury sector gained 0.2% each.
Switzerland already closed. Exchanges in France, Spain, and the UK operated on abbreviated schedules for the day.
Most of Europe's major markets wrapped 2025 in the green, but Spain stood out. Madrid's IBEX gained nearly 50%, leaving its regional peers well behind.
France lagged. The CAC 40 logged roughly a 10.4% gain, the most subdued among the big bourses as political turbulence, worsening fiscal-debt worries and a jump in bond yields kept investors cautious.
Germany's DAX climbed about 23%, buoyed by government support measures, from fiscal stimulus to targeted infrastructure spending. UK's FTSE 100 extended its run, rising around 22% in 2025 and notching up a fifth straight year of gains.
Reporting by Ragini Mathur, Pranav Kashyap and , Utkarsh Tushar Hathi in Bengaluru; Editing by Nivedita Bhattacharjee, Ronojoy Mazumdar, Alexandra Hudson
Source: Reuters