Retail traders are growing tired of the short-lived rally in stocks such as Krispy Kreme or Kohl’s. A broader, and possibly more durable trend is emerging in global markets.
Investors are increasingly turning to European stocks, hoping that they will outperform US-based stocks. This is a new trend after many years of American dominance.
This shift was re-enforced on Friday, after the US employment report came in weaker than expected. The dollar fell and so did major US indexes.
This move brought back the idea that diversification of global markets, particularly towards Europe, could provide greater returns given the geopolitical climate and current economic conditions.
Defence and diversification are driving forces for European growth
The current macro-environment has clearly benefited European defense companies, especially in the wake of Donald Trump’s policy of “America First”, and the resulting reorientation to global defense expenditure.
Leonardo SpA, a company in Italy, has almost doubled its dollar value this year.
Due to the rapid growth of their fan bases, both firms are attracting significant interest from retail investors.
It is not just about defense. BNP Paribas SA in France and Nordea Bank Abp in Finland have both seen significant growth. Well-known European blue-chips such as Nestle SA Bayer AG and Adidas AG are also becoming increasingly popular with US-based investors.
Samuel Nofzinger is the general manager at Public Holdings and he says that the retail appetite for foreign stocks has been stable compared to the volatility seen with traditional meme names.
He said that “most people who are in international names hold them.”
As US markets lagged, ETFs captured record flows
The European Equity-focused Exchange-Traded Funds (ETFs), which are focused on European equity, have attracted more than 12 billion dollars in investment so far in 2020. This puts the asset class in a position to enjoy its best year since 2021.
Vanguard’s European ETF has attracted more than $5 billion to date, reversing a $2 billion outflow last year.
S&P 500 gained 6.1% through the close of Friday 2025. This is a modest gain when compared to the 31.1% rise in Germany’s DAX, and the 17.1% increase in UK’s FTSE 100.
Retail investors found Europe to be a good choice because of the strong performance and geopolitical background. Joseph Begonis, a Tampa resident who recently invested $10,000 into VGK cited the increasing European defense expenditure as a major factor. He said: “I believe that money is the best indicator of what’s going on.”
Weaker dollar, stretched US valuations spur portfolio rebalancing
A weaker dollar has also boosted the appeal of European shares, as have perceptions about US stock valuations.
Financial advisors now encourage clients to invest more in foreign stocks as a way to protect themselves against possible US market declines.
Lia Holmgren, a retail investor from Miami, is following the trend.
She said that Europe had a tough decade and there is a great deal of value.
Holmgren, among others, is increasingly convinced of the need for diversification.
The post Retail Investors Shift Focus to Europe As US Valuations Stretch may be updated as new developments unfold.
