The Nasdaq 100 index has hit a record high, while the S&P 500 is just 150 points shy of its peak. Recently, US stock indices are taking a breather, with futures suggesting a flat start. This follows a month where US stocks outperformed European ones, as the S&P 500 rose by 5%, compared to a 1% fall in the Eurostoxx 50 index. When looking at performance since the beginning of the year, European indices have actually done better. Germany’s DAX is up by 18%, Spain’s Ibex by 19%, and Italy’s FTSE MIB by 15%. Meanwhile, the S&P 500 has increased only 3.5% and the Nasdaq by 3.1%. The UK’s FTSE 100 and Eurostoxx 50 both saw a 7% rise.

Emerging Market Trends

German companies, especially defense stocks like Rheinmetall, have boosted European performance, with Rheinmetall soaring 177% in 2025. Recently, these defense stocks have sold off, with Rheinmetall dropping over 2% while Nvidia rose by 2%. Lower demand for defense stocks and easing Middle East tensions suggest a return to US tech stocks, signaling a potential rebound for the US market in the upcoming months. Recently, there’s been a clear pause in the upward trend of major US indices after a strong run. The Nasdaq 100 recently reached a new high, and the S&P 500 is close to its record, only 150 points away. However, futures markets lack that same energy, indicating a wait-and-see attitude. This comes after a month where US stocks clearly outperformed their European rivals, with the S&P 500 climbing 5% while the Eurostoxx 50 saw losses. In contrast, when looking from the year’s start, European indices have outperformed. The DAX has shown significant gains, along with Spain and Italy. Specific sectors, such as defense, have driven these moves, highlighted by Rheinmetall’s impressive returns. However, we are starting to see a downturn. Recent sessions have shown a decline in defense stocks, highlighted by Rheinmetall’s drop, while US tech shares have started to rise. Expectations are shifting. The strong performance in European industrial and defense sectors is beginning to lose steam. Easing global tensions that had increased demand are reflected in stock prices. While European stocks had the edge for much of the year, recent trends indicate capital may flow back to the US with technology leading the way again. For instance, Nvidia’s 2% gain in contrast to Rheinmetall’s 2% loss clearly illustrates the changing appetite and necessary adjustments in positioning.

Recalibrating Strategies

For traders in derivatives, it’s time to adjust strategies away from sectors and regions that previously drove gains. Consider reviewing contracts tied to European equities and reassessing exposure in tech-focused US indices like the Nasdaq 100. Although the FTSE 100 and Eurostoxx 50 have both seen gains this year, their pace has been overshadowed recently by US stocks. The move back into US tech seems promising, especially as pressures on defense and cyclical sectors continue. Sentiment can change quickly, and weakness in these areas could impact options pricing and implied volatility. Traders should monitor shifting trends in skew and volume within US tech derivatives, especially as the S&P 500 approaches its previous highs and the Nasdaq moves into new territory. Short-term consolidations may occur, particularly around expiration dates or busy data weeks, but the overall trend points to a favorable outlook for US tech, while previous European momentum appears to be fading. The gap between US and European indices may widen again, prompting traders to think about long/short strategies with regional ETFs or index futures. Timing entries will be essential, especially with macro events on the horizon and significant shifts in positioning over the past two weeks. Currently, challenges for European defense indicate possible further declines, while growth sectors led by the US begin to gain traction without the same risks. Create your live VT Markets account and start trading now.

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