According to early indications, the Paris CAC 40 is set to open up 0.2%, Frankfurt's DAX is expected to gain 0.3%, while London's FTSE 100 is seen hovering around the flatline.

Despite a tense geopolitical backdrop, volatile precious metal prices, plunging cryptocurrencies, and ongoing questions about AI, European equity markets have started 2026 on a strong note, with the Euro STOXX posting a gain of nearly 3.6% since the start of the year.

The CAC itself rose 1.8% last week, snapping a three-week losing streak and bringing its year-to-date gain to around 1.5% so far.

Fueled by a wave of bargain hunting, U.S. equity markets staged a dramatic rebound on Friday, with the Dow Jones index climbing 2.5% and crossing the 50,000-point threshold for the first time in its history.

Investors returned to the semiconductor sector, led by Nvidia (+7.9%), and to a lesser extent, software stocks, as a bout of bargain hunting followed a bearish phase triggered by concerns over the disruptive impact of AI. This had previously driven the sector into a bear market, with a 39% drop since last September's highs.

"The issue isn't so much the profits being generated today as the uncertainty surrounding the margins that will be achieved tomorrow," Goldman Sachs analysts explained last week.

"After years of investors scrambling to identify stocks most exposed to AI's potential, fears about the upheaval it brings have shifted attention back to sectors more deeply rooted in the 'real economy'," the U.S. bank added.

For many strategists, the recent bout of volatility is unlikely to disappear soon, especially with a major pitfall looming this week: the monthly U.S. jobs report, which was originally scheduled for Friday but will be released on Wednesday due to the partial "shutdown" in Washington.

After a series of worrying labor market indicators released last week, some economists are concerned about an overly sharp slowdown in job creation, which could raise fears of a broader U.S. economic slowdown.

"The U.S. labor market remains fragile, with average three-month job creation dropping to zero for the first time since the start of the current cycle," note strategists at Bank of America.

"In previous cycles, a halt in job growth has consistently been a leading indicator of rising macroeconomic and financial tensions," the New York investment bank warns.

So far, investors haven't been overly concerned about labor market weakness, as it has been accompanied by still-solid economic growth, suggesting continued support from the Federal Reserve.

But BofA points out that this resilience is largely due to households dipping into their savings to smooth consumption during periods of income weakness.

"If labor market deterioration were to intensify, it could start weighing on consumption, especially since the savings rate is already at exceptionally low levels," the firm notes.

"This could ultimately call into question the current investor euphoria," it warns.

Beyond Wednesday's jobs report, the week will also feature the latest consumer price index (CPI) figures, which are expected to show a 2.5% increase in January.

Quarterly results from Cisco, Coca-Cola, and Siemens will also be closely watched, as the earnings season has so far proved rather lackluster, with only 76% of U.S. companies beating expectations, compared to an average of 78% over the past five years.

Given these conditions, European equity markets could well continue to outperform, analysts say, as investors look to move away from highly concentrated U.S. markets dominated by large caps and take advantage of more reasonable valuations on the Old Continent.