AI Overview
As of early 2026, European investors and institutions are reducing exposure to U.S. assets amid trade tensions and high valuations, leading to a "Sell-America" trend that includes increased short selling and the shedding of U.S. Treasury holdings. While this action is driven by potential tariff retaliation and market volatility, significant challenges exist, such as high borrowing costs and regulatory oversight, potentially limiting the impact of a sustained, large-scale, or "naked" short-selling strategy.
Key Aspects of European Short Selling of U.S. Stocks:
"Sell-America" Trend: In 2025 and early 2026, European funds began reducing U.S. holdings due to fears of trade retaliation and potential for overvalued tech stocks.
Impact on U.S. Markets: While foreign investors held a record 18% of the U.S. equity market as of 2025, the recent selloff is considered relatively mild compared to historic, larger selloffs.
Regulatory Framework: The European Union's Short Selling Regulation (SSR) focuses on transparency and reducing risks associated with naked short selling, though this predominantly applies to EU-listed instruments.
Risks and Constraints: Short selling, particularly naked short selling, is subject to restrictions and close-out obligations (e.g., SEC Regulation SHO) to prevent market manipulation and failure-to-deliver issues.
Short Squeezes: Research indicates that short-squeeze events in both the U.S. and EU are relatively rare and short-lived, with significant price discovery observed in both markets.
European entities are actively navigating these risks, with some, such as Swedish fund Alecta, already reducing U.S. treasury positions.
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