Stock market: Will money flow into Europe?
- The Treasury’s plan to lower bond yields risks triggering a ‘Sell America’ trade.
- European shares are currently underperforming their US counterparts, but the gap is narrowing.
The stock market rose slightly towards the close but ended the week in the red. Positive news from the US economy and expectations surrounding NVIDIA’s corporate results prompted profit-taking on short positions. S&P Global’s Composite Output Index rose to its highest level in more than four years, while Bloomberg analysts raised their forecast for US GDP in the third quarter to 2.5%, giving a boost to the S&P 500.
At the same time, concerns about the impact of the Treasury’s scheme to suppress Treasury yields on stock indices have not gone away. Bank of America refers to the Treasury’s plan to rescue the bond market as the ‘Bessent put’, drawing a parallel with the ‘Trump put’, which rescued the stock market. The bank notes that if attempts to rein in borrowing costs fail, hyperscalers will suffer. Their borrowing costs for financing investments in artificial intelligence will rise significantly, negatively impacting their financial results and leading to a fall in share prices.
The entire information technology sector will be affected. According to Goldman Sachs, hedge funds are actively diversifying their portfolios, withdrawing funds and investing them in other S&P 500 issuers.
Investors will be looking for the first signs of trouble in NVIDIA’s second-quarter financial results. The company tops the list of firms raising capital to develop artificial intelligence systems, including projects such as Anthropic and OpenAI. The markets will be closely monitoring trends in chip demand and NVIDIA’s financial plans.
The Treasury’s plan to rein in bond yields risks triggering a ‘sell America’ trend and increasing investor interest in equity markets in other regions. Although the STOXX Europe 600 has gone up 10% so far this year, it lags the S&P 500’s 12% rally. Nevertheless, the gap is narrowing, and European companies posted an 18% rise in earnings per share in the second quarter. This is a very strong result after flat growth in 2024–2025.
Goldman Sachs and JPMorgan are the main bulls on the STOXX Europe 600, expecting the index to rally to 670–680, or about 3% above current levels.
Summary: US stocks face pressure from yield risks, while Europe looks more attractive as earnings improve and the gap with the S&P 500 narrows.
Author
Alexander Kuptsikevich, a senior market analyst at FxPro, has been with the company since its foundation. From time to time, he gives commentaries on radio and television. He publishes in major economic and socio-political media.
