US stock market sentiment is positive with strong Q3 earnings from AI stocks and expectations of interest rate cuts. European defense stocks reverse after Ukraine peace talks. European inflation and interest rates are low, with improving GDP growth. US markets at all-time highs, while European markets peaked in mid-November.

US investors are confident with solid earnings and expected interest rate cuts. Nvidia’s revenue up 60% and earnings exceed expectations. Interest rate cut expected on Dec. 10, boosting markets. European stocks stumble in November after Ukraine peace talks impact defense stocks. European markets lag behind US.

European defense stocks have pulled back after a strong rally. Exposure to increased defense spending unique to European market. Shares in Rheinmetall down almost a quarter from September. Some investors less optimistic about European equities for defense exposure in 2026.

Both US and European stock markets up more than 17% year to date in local currencies. Equity market valuations appealing. OECD upgrades global GDP forecasts. European interest rates at 2%, inflation under control, expectations for further interest rate cuts and improving GDP growth. Solid backdrop for European equities in 2026.

Read more at Morningstar: With Defense Stocks Falling and AI Booming, Is Europe Still a Buy in 2026?