As retail traders begin to tire of short-lived rallies in meme stocks like Krispy Kreme and Kohl’s, a broader and potentially more sustainable trend is taking shape in global markets.
A growing number of individual investors are rotating into European equities, betting that stocks across the Atlantic are poised to outperform their US counterparts — a rare dynamic after years of American dominance.
That shift gained renewed momentum on Friday after a weaker-than-expected US jobs report sent the dollar and major US indices lower.
The move reignited interest in the narrative that global diversification — particularly toward Europe — could offer stronger returns in the current geopolitical and economic climate.
Defense and diversification drive European momentum
European defense firms have emerged as clear beneficiaries of the current macro environment, particularly in light of President Donald Trump’s “America First” policy stance and the subsequent reorientation of global defense spending.
Germany’s Rheinmetall AG has more than tripled in dollar terms this year, while Italy’s Leonardo SpA has nearly doubled.
Both firms have attracted significant retail interest, sometimes even being labeled as “meme stocks” due to their rapid gains and growing fan base among online investors.
The appeal extends beyond defense. France’s BNP Paribas SA and Finland’s Nordea Bank Abp have also seen notable growth, while well-known European blue chips such as Nestlé SA, Bayer AG, and Adidas AG have become increasingly popular among US-based investors.
According to Samuel Nofzinger, general manager of the trading platform Public Holdings, retail appetite for international stocks has been more stable than the volatile flows seen in traditional meme names.
“Most people who have gone into international names are holding them,” he said.
ETFs capture record flows as US markets lag
European equity-focused exchange-traded funds (ETFs) have drawn more than $12 billion in inflows so far in 2025, positioning the asset class for its strongest year since 2021.
Vanguard’s European ETF (VGK) alone has attracted over $5 billion year-to-date, reversing the $2 billion in outflows it saw last year.
The S&P 500 has gained 6.1% in 2025 through Friday’s close — a modest performance when compared with the 31% rally in Germany’s DAX and the 17% rise in the UK’s FTSE 100, both measured in dollar terms.
For retail investors, the outperformance and the geopolitical backdrop made Europe a compelling choice. Joseph Begonis of Tampa recently invested $10,000 in VGK, citing increasing European defense spending as a key factor. “I’m a believer that you follow the money,” he said.
Weaker dollar, stretched US valuations spur portfolio rebalancing
The appeal of European stocks has also been amplified by a weaker dollar and perceptions that US valuations have become excessive.
Many financial advisors are now encouraging clients to increase exposure to foreign equities as a hedge against potential US market downturns.
Retail investors like Lia Holmgren of Miami are following suit.
“Europe had a really hard time for the past decade, so there’s a lot of value,” she said, noting that she’s added both Rheinmetall and Leonardo to her portfolio alongside VGK.
For Holmgren and others, the case for international diversification is becoming harder to ignore.
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