Is the European bull market coming to an end? Smart money has already started to flee and is turning to buy U.S. stocks!

Hedge funds are selling European stocks at the fastest pace in nearly a year, refocusing on the U.S. market.

On Wednesday, according to the latest reports from Goldman Sachs and Barclays, investment management companies are selling European assets at the fastest rate in nearly a year, taking profits in defense stocks while shifting their attention back to the U.S.

The Goldman Sachs team analyzed trading data up to June 20 and found that the short selling of European stocks in the previous week reached the second-largest weekly record in the past 12 months, as hedge funds aggressively established new short positions in individual stocks and macro products, driving this trend.

This shift comes after the European market has significantly outperformed U.S. stocks for several months, with the German DAX index rising over 17% year-to-date, while the Dow Jones Industrial Average has only increased by 1.28%. Barclays analyst Emmanuel Cau stated that investor caution prevails, and "buying the U.S." has become the new slogan.

Hedge funds continue to buy bank stocks, defense stocks become profit-taking targets

The European defense sector has recently performed well, driven by proposals from NATO member countries in the region to increase military spending. German armored vehicle manufacturer Rheinmetall's stock has soared 248% in the past 12 months, becoming a star stock.

However, Goldman Sachs observed significant net selling of European defense stocks ahead of the current NATO meeting. In fact, hedge funds have been net selling the entire German market since April.

Despite the overall sell-off of European stocks, funds continue to net buy financial services and bank stocks on the European continent, as well as telecom stocks. Investor interest in the telecom sector stems from expectations of consolidation in the industry. The European bank stock index has risen 37% this year.

Goldman Sachs also noted that funds have been bullish on European companies with greater exposure to the U.S. economy, such as consistently net buying luxury goods group stocks.

Barclays analyst Cau stated in a report released earlier this week: "The strong performance of Europe year-to-date is beginning to weaken, with the strengthening euro seen as a headwind to earnings, and persistent tariff uncertainties limiting the upside for exporters." The euro has risen 12% against the dollar this year, which puts pressure on European corporate earnings.

Previous articles from Jianwen pointed out that Goldman Sachs indicated that investor concerns about the European market mainly focus on two key issues: a lack of recent catalysts and insufficient growth momentum. The performance of European stocks over the past 12 months has relied entirely on value re-evaluation and dividend contributions. The price-to-earnings ratio of European stocks has reached 14.2 times, close to the 70th percentile of the historical range, and is no longer cheap. A strong currency, weak economic growth, and low oil prices all weigh on earnings per share.

Funds are re-focusing on U.S. stocks, and a weaker dollar boosts the attractiveness of U.S. stocks

On the contrary, investors are beginning to turn back to U.S. stocks.

This shift in focus towards the U.S. market is partly based on hopes that recent concerns about an economic recession in the U.S. will not materialize.

Barclays analyst Emmanuel Cau has also observed this trend. Cau added: "Large tech stocks are back in favor, as investors believe that considering the benefits of geopolitical uncertainty and a weaker dollar, U.S. stocks may be more resilient during the summer compared to other parts of the world."