European markets outperform forecasts amid Iran war concerns

A few months ago, the consensus view on European markets was grim. The Iran war had sent oil prices surging, EU officials were openly warning about stagflation, and growth forecasts were being slashed. On August 4, 2026, the pan-European STOXX 600 index climbed to a record high of 656.86, gaining 0.7% on the session. That came a day after the index closed up 0.5% at 652.09 points. Year-to-date, the benchmark is up roughly 10-11%. From stagflation warnings to record highs The Iran conflict escalated sharply from late February 2026, sending Brent crude past $90 per barrel and triggering 1-2.5% drops across major European indices in March alone. By May, the EU economy commissioner was using the phrase “stagflationary shock” in official communications. Growth forecasts were downgraded, inflation expectations were revised upward, and the mood in Brussels was decidedly bleak. Diplomatic signals between the US and Iran began emerging in early August, and while Iran has denied that formal talks are underway, oil prices started declining. Strong corporate earnings reports did the rest, giving investors enough confidence to push equities to new highs. Most major European indices participated...