European stock ETFs recorded their first month of positive net flows in July since the US-Iran conflict began in late February, as investors returned to a region where earnings are growing at the fastest clip in years. BlackRock's European equities products alone pulled in $4.4 billion last month, a sign that the money is not just trickling back but flooding in.
Why the money came back
The trigger is simple: companies in the Stoxx Europe 600 are on track for 22% year-on-year earnings growth in Q2, the strongest since 2022. That number has shifted the calculus for fund managers who spent the spring parked in cash or US tech. With oil prices easing and mega-cap tech stocks looking wobbly, Europe suddenly offers something Wall Street can't match — cheaper valuations and a profit cycle that's accelerating.
Banks led the charge. BNP Paribas saw quarterly profits surge by a third, while UBS posted a 17% jump to a record, powered by trading revenues. The financial sector's strength is rippling through the index, and it's not just a one-off quarter. UBS raised its year-end target for the Stoxx 600 to 690 points from 630, implying roughly 5% upside from Friday's close. Goldman Sachs is even more aggressive on specific names, projecting 168% upside for UK clean energy developer Ceres Power and 102% for German defense contractor Rheinmetall over the next 12 months.
Record highs and a wide rally
The Stoxx 600 has gained 10.7% in 2026 and touched a record 663.4 points this month. Germany's Dax, the FTSE 100, France's Cac 40, and Spain's Ibex have all hit their own highs. The rally is broad, not just a handful of large caps, which is why ETF flows are turning positive. Investors who sat out the first half are now chasing performance, and they're buying baskets rather than single stocks.
But not everyone is convinced the run has legs. Societe Generale expects the Stoxx 600 to fall to 600 points, a drop of about 9% from current levels. TFS forecasts a similar decline, targeting 585. The bears argue that earnings growth is peaking and that the recent surge in bank profits is cyclical, not structural. They also point to lingering geopolitical risks that could reignite oil price spikes and derail the recovery.
What the skeptics are watching
The bulls and bears agree on one thing: the next few weeks will be telling. Second-quarter earnings season is winding down, but guidance for the second half is what matters. If companies start warning about margins or demand, the ETF inflows could reverse just as quickly as they appeared. For now, the money is flowing in, and the record highs are real. The open question is whether the earnings momentum can survive a slowdown in global trade — and whether the flow of capital into European equities is a shift or a blip.
