The Nasdaq 100 index reached a record high, while the S&P 500 is only 150 pips from its peak. Despite recent gains, US stock indices are taking a pause, with futures markets indicating a flat opening. This pause follows a period of dominance by US stocks over European counterparts in the past month, with the S&P 500 rising by 5%, compared to a 1% decline in the Eurostoxx 50 index.

However, on a year-to-date basis, European indices have outperformed US ones. The Dax is up by 18%, Spain’s Ibex by 19%, and Italy’s FTSE MIB by 15%. In contrast, the S&P 500 gained 3.5%, and the Nasdaq is up by 3.1%. The UK’s FTSE 100 and Eurostoxx 50 have also risen by 7% each.

Emerging Market Trends

German companies, notably defense stocks like Rheinmetall, have propelled European performance, with Rheinmetall up 177% in 2025. Recently, defense stocks have faced a sell-off, with Rheinmetall dropping over 2% as Nvidia gained 2%. The slowing demand for defense stocks, coupled with stabilising Middle East tensions, suggests a shift back towards US tech stocks as entities like Nvidia begin to outperform. This emerging trend may see a resurgence in US stock market performance in the coming months.

What we’ve witnessed in recent sessions is a distinct pause in upward momentum across major US indices following a strong run-up. Nasdaq 100 touched a new high, and the S&P 500 sits within striking distance of its best level on record—just 150 points away. However, futures markets aren’t carrying forward that enthusiasm right now, opening flat and hinting at a wait-and-see mode creeping into sentiment. This comes on the back of a month where US equities clearly overshadowed their European peers. While the S&P 500 climbed 5% in that time, the Eurostoxx 50 actually posted losses.

That said, if one zooms out to observe performance since the start of the year, it’s quite a different picture. European indices remain ahead. On a percentage basis, Germany’s DAX has risen sharply, joined by Spain and Italy posting similar strength. These moves were driven by specific sectors—notably defence—where names like Rheinmetall have stood out. The firm has returned eye-watering figures this year so far. But cracks are now beginning to show there. Over the past sessions, gains in defence have started to unwind, nudging down names like Rheinmetall while at the same time tech shares—especially in the US—have picked up.

We are seeing a rebalancing of expectations. The initial tailwind behind industrial and defence sectors in Europe appears to be losing momentum. Tensions abroad, which had pushed demand higher, are no longer accelerating, and that slowing pace is being reflected in share prices. While European equities had been outperforming for the better part of the year, the recent rotation suggests that flows may return to the US, with technology seeming once again to lead the way. Nvidia’s 2% rise, matched against a 2% fall in Rheinmetall, tells a clear story: appetite is shifting, and with it, positioning will need to adapt.

Recalibrating Strategies

For those trading derivatives, this means recalibrating strategies away from sectors and regions that had previously driven gains. It may be appropriate to scrutinise existing contracts tied to European equities and look again at exposure across tech-heavy US indices like the Nasdaq 100. We would also factor in that while the FTSE 100 and Eurostoxx 50 have both risen this year, their rate of advance has been eclipsed recently by US equities regaining pace.

The move into US tech seems to have legs, particularly as some of the pressure on defence and cyclical names continues. Sentiment there can be fickler, and softness in those sectors may carry through to options pricing and implied volatility. Traders should watch for changes in skew and volume across US tech derivatives, especially as the S&P 500 nears previous highs and Nasdaq extends uncharted ground.

We might expect short-term consolidations here and there, particularly around expiry windows or data-heavy calendar weeks, but the broader story suggests upward bias in US tech, while previous European momentum softens. Spreads between US and European indices could widen again, and traders may wish to consider those through long/short strategies across regional ETFs or index futures.

Timing entry points will be key, especially with macro catalysts ahead and positioning already having shifted meaningfully in the past fortnight. For now, the headwinds facing European defence suggest further contraction may lie ahead, while US-led growth sectors start to show traction without the same overhead risks.

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