'Buy America': hedge funds have started to return to US stocks after rally in Europe

Large investors have begun to turn towards the U.S.: after the rapid growth of European markets, hedge funds began to fix their profits there, especially in the defense sector, and shift their attention to U.S. assets. «Buy America» is becoming the new mantra amid the slowdown in Europe, the strengthening of the euro and hopes for the stability of the U.S. economy, said analysts at Goldman Sachs and Barclays.

Hedge fund managers sold off European assets last week (through June 20) at nearly the fastest pace in a year as they locked in gains from defense stocks to get back into the U.S. market, wrote MarketWatch, citing two surveys - from Goldman Sachs and Barclays.

For example, according to Goldman Sachs, last week's weekly volume of short selling (when an investor sells an asset in hopes of buying it back later at a lower price) was the second largest in the past 12 months. That was due to hedge funds opening new short positions in individual stocks and macro-level instruments - which include currencies, bonds, stock indexes and natural resources, MarketWatch noted.

Hedge funds are still buying more European securities than selling, in financial services and banks, as well as telecommunications, the publication added. Goldman also noted that funds are opening long positions in European companies that are more focused on the U.S. economy, such as luxury stocks.

European markets have significantly outperformed Wall Street in recent months. For example, the DAX index, which includes 40 of Germany's largest companies, has risen 18% since the beginning of 2025 thanks to investors' hopes for increased government spending, MarketWatch writes. By comparison: the U.S. blue-chip index Dow Jones Industrial Average has added just 1% over the same period.

Defense has recently become one of the leading sectors in Europe, helped by proposals to increase military spending by NATO member countries in the region, MarketWatch noted. For example, shares of German armored vehicle maker Rheinmetall have risen 254% over the past 12 months. But as Goldman Sachs noted, European defense stocks were more sold than bought already ahead of the NATO summit (held June 24-25), and hedge funds have mostly been selling German securities since April, the publication added.

At the same time, the market rally resumed in the United States after the ceasefire between Israel and Iran and thanks to a lull in trade wars. The Nasdaq 100 index, which includes the largest U.S. technology companies, on June 24 updated its record for the first time since February. The S&P 500 index is also close to an all-time high, wrote Bloomberg. The S&P 500 was down slightly on Wednesday, though: there are signs of investor fatigue and suggestions that stocks have gone too far despite ongoing economic and geopolitical risks, the agency suggested.

The reversal of investor attention back to the U.S. is partly due to hopes that recession fears will not be confirmed, according to MarketWatch. A cautious approach to Europe is beginning to prevail among investors, and «Buy America» is now the new mantra, said Barclays analyst Emmanuel Koo.

«Europe's superiority [in growth markets] relative to the start of the year is starting to erode: a strengthening euro is seen as a drag on profits, and continued uncertainty over duties is limiting exporters' potential,» wrote Koo in a note

The Barclays analyst added that big tech giants are now back in vogue, with investors believing that «US equities are likely to prove more resilient than the rest of the world this summer» given geopolitical uncertainty and the benefits of a weaker dollar, he argued.

This article was AI-translated and verified by a human editor