U.S. stocks hit a historic high as short squeezes accelerate capital inflows back to American tech giants under the "end of exceptionalism" theory

The Zhitong Finance APP noted that Wall Street has strongly rebounded from tariff turmoil and reached a historic high, significantly narrowing the gap with European stock markets. This has posed a severe test for investors betting on the end of the "exceptionalism era" in the U.S. market. In the second quarter of this year, the blue-chip S&P 500 index surged by 10%, far exceeding the less than 2% increase of the European Stoxx 600 index and other major global indices during the same period.

The outstanding performance of the U.S. stock market has broken market expectations—previously, investors believed that Trump's chaotic tariff policies would lead to a continuous rotation of funds to other markets (especially Europe). Although Europe had strengthened earlier in 2025 due to expectations of defense and infrastructure spending, funds are now flowing back into technology stocks that have led the rally in recent years.

Shep Perkins, Chief Investment Officer at Putnam Investments, stated, "In the second quarter, we saw the market return to its old patterns."

So far in 2025, driven by fiscal stimulus policies and expectations of regional economic integration reforms, the European Stoxx 600 index has slightly outperformed with a 7% increase compared to the 5% rise of the S&P 500. However, the recent weak performance of the European market has raised concerns, with investors questioning whether Germany's trillion-euro "whatever it takes" defense infrastructure plan can maintain its momentum.

"The crux of the European market has always been corporate earnings," pointed out Dirk Malaki, Managing Director at SLC Management. "U.S. companies have solid balance sheets to support them, while European trading is more speculative—relying entirely on whether Germany can implement its infrastructure plans."

Economic data from Europe has yet to confirm the market's optimistic expectations. The European Commission downgraded its growth forecast last month, and the latest survey shows that business confidence in both the EU and the Eurozone declined in June. In contrast, the U.S. has seen stronger-than-expected employment data, with the unemployment rate remaining stable and not significantly impacted by the trade war.

U.S. stocks have received dual support: retail investors continue to "buy the dip," and companies are repurchasing stocks at record levels.

Nvidia reached a historic high last week, Palantir surged by 50% in the second quarter, and Coinbase's stock price doubled, indicating that funds are still chasing technology and crypto assets.

As tech giants regain the lead, the anticipated broad market rally has not materialized. The equal-weighted S&P 500 index has underperformed traditional market-cap-weighted indices this year. Some investors still maintain the judgment that funds will withdraw from U.S. stocks, and global investors are re-evaluating their overweight positions in dollar assets.

Despite the narrowing performance gap in the second quarter, the dollar's exchange rate against the euro remains 13% lower, and U.S. Treasuries are under pressure due to debt issues. Goldman Sachs analysts pointed out that even considering higher equity returns, U.S. stock valuations are already too high, and "the era of asset diversification has just begun."

As the Trump administration is about to end the 90-day tariff suspension period and engage in trade negotiations with various countries, some investors are warning that Wall Street may experience turmoil again Luca Paolini, Chief Strategist at Pictet Asset Management, believes that in the long term, the convergence of economic growth between the US and Europe will narrow the gap in the stock markets, but the early-year rally in Europe may have overdrawn expectations. "The truth may lie somewhere in between: the US is not a paradise, and Europe is certainly not hell."