A sharp sell-off in US stocks this year has seen European stocks take their place as the hottest trade in global markets.

"Prior to the US elections, we assumed that a Trump victory would reinforce US exceptionalism," HSBC global equity strategist Alastair Pinder wrote on Monday.

"Today, we are upgrading Europe (ex-UK) to overweight (from underweight) and downgrading the US to neutral."

After Monday's market meltdown , the S&P 500 ( ^GSPC ) is down over 4% this year and 7% from its record high, while the Nasdaq Composite (^ IXIC ) is off 9% in 2025 and more than 11% from its latest peak.

Across the pond, France's CAC 40 ( ^FCHI ), Germany's DAX ( ^GDAXI ), and the Euro Stoxx 50 ( ^STOXX50E ) have each gained more than 10% this year. Britain's FTSE 100 ( ^FTSE ), the laggard of the group, is still up better than 5% in 2025.

"What we underestimated was how the US's wavering support for NATO and Ukraine would trigger a watershed moment for the eurozone — with Germany expected to also follow through with sizeable fiscal stimulus," Pinder wrote. "It is important to stress that we are not turning negative on US equities — but tactically, we see better opportunities elsewhere for now."

The German DAX touched a record high earlier this month as Europe's largest economy prepares to boost infrastructure and defense spending , while the Trump administration signals it will be less expansive in its military support of its European counterparts.

And Pinder's call coincides with a growing number of voices on Wall Street avoiding the "US exceptionalism" playbook and turning to European equities for a win against this new fiscal backdrop.

"The regional change is additional to our style call since last summer that Growth style, US Tech, and Mag-7, are all unlikely to work this year," JPMorgan head of global and European equity strategy Mislav Matejka wrote in a note on Monday.

"Less US exceptionalism on these fronts helps the International/Value trade."

At UBS, strategists also recently noted that the scale of a fiscal boost in Germany could provide a lift to confidence in the region, even before increased spending hits the economy.

"The strong pro-growth signal from the move has the potential to support consumer and business sentiment well before funds start to be deployed," Solita Marcelli, chief investment officer Americas at UBS Financial Services, wrote last week.

However, JPMorgan's Matejka cautioned that "tactically, near term, a lot has repriced very quickly."

In February, Bank of America's global fund manager survey showed a notable shift in how investors are thinking about markets worldwide.

Last month's survey showed 34% of fund managers said global stocks will be leading the asset class this year. US equities dropped to third in the rankings, with 18% of respondents saying the asset class will lead returns this year. Gold placed second, with 22% of respondents expecting it to lead global markets.

Given the speed of the move into European stocks, US tariff uncertainty also looms as a potential risk to the outlook.

"Eurozone P/E has rerated to 15% [a] premium to [its] historical [level], and if bond yields keep spiking, the valuation case would further erode," Matejka added. "Eurozone short term looks overbought."

@ines_ferre .