Four years ago, everyday Americans piled into retail-popular stocks in an effort to send a message to “the suits” on Wall Street — sending shares of heavily-shorted firms like GameStopGME

and AMC EntertainmentAMC

skyrocketing. In markets like these, it would be unexpected for such a thing to happen in the US, but a smaller version is taking place on the other side of the pond.

Europe First: A shakeup in US leadership has encouraged the European Union to recognize two things — they were ill-prepared for Russia’s invasion of Ukraine, and they’re ill-prepared now. They’re breaking their ambivalence by committing to spend over €800B ($870B) on defense spending. Most importantly, they want to keep that spending at home, ending reliance on American contractors and politically-affected firms like Elon Musk’s Starlink. European retail investors have read the room, piling into European defense names to capitalize on the new spending. The momentum for European defense names has paralyzed shorts, with short sellers losing nearly $300M in the three weeks leading to Mar. 14 per FT/S3 Partners.

• Shares of European defense names like HensoldtHAGHY
  , Renk, and Eutelsat ($ETCMY) have more than doubled — torching US-based asset giants BlackRock, Millennium, and hedge fund Darsana.
• Investors have coordinated on Reddit subcommunities, watching the STOXX Europe Aerospace & Defense Index ascend as shorts buy to cover — it has now rallied over 36% to start the year.

European Exceptionalism

Europe’s defense short squeeze isn’t near the scale or chaos of the now-famous GameStop short squeeze, but the rally is notable — even as some names appear to be losing some steam. It’s no matter though, because retail optimism isn’t all that has investors excited about Europe. Right now, it seems the whole continent is turning a corner.

• JPMorgan’s Karen Ward wrote in FT that a “period of European exceptionalism” might be starting in markets — with the region’s fiscal, monetary, and regulatory environment easing.
• With the European Central Bank easing rates back to near-zero levels, EU member countries like Germany set to spend €500B on infrastructure, and defense tailwinds, Europe’s growth outlook could be on the mend.

Forward-looking: To start the year, the STOXX Europe 600 is up 8.2%, prompting upgrades from investment banks like Barclays — who raised its year-end forecast from 545 to 580. There is no US-based ETF that directly mimics the STOXX Europe 600, but there is always the Vanguard FTSE European ETFVGK

, which we covered in a recent story on the surprising outperformance of EU banks.VGK

is now up 15% YTD, up nearly 3% since our February coverage, making its impressive start to the year increasingly hard to ignore.