Just as the US Treasury bond is a key driver of global risk appetite, watching trends in US equities is always a useful guide to what changes we might expect to see in the UK and Europe at some stage.

In recent trading sessions, US investors have begun rotating out of their holdings in internationally exposed ‘recovery’ stocks and into ‘Covid winners’ again.

This shift has undoubtedly been prompted by the recent surge in virus cases in Europe, in particular Germany, Austria, Italy and the Netherlands. With hospitals once again filling up with patients, government restrictions are back as European countries try to fight a fourth wave of infections.

In Germany, Europe’s largest economy, chancellor Angela Merkel has said the latest outbreak is worse than anything the country has experienced so far and warned hospitals could soon be overwhelmed.

So far, Covid has killed more than 5 million people worldwide with more than 375,000 new cases being registered every day. While deaths in Europe are less than a quarter of the levels seen this time last year, they are rising rapidly.

Perhaps because cases in the UK have been relatively high for some time but the hospitalisation rate has been relatively low, we get the sense investors have abandoned the stocks which initially benefited from lockdown and fully embraced the ‘reopening trade’ on these shores.

A quick scan of the FTSE 350 index, which has traded sideways in the last month adding just 11 points or 0.3% since 23 October, confirms that thought.

Among the best-performing stocks of the last four weeks are rejuvenated high-street retailer Marks & Spencer (MKS) up 38%, and bus and rail firm FirstGroup (FGP) up 12%.

In stark contrast, some of the worst performers over the past month have been former Covid winners, in particular online retailers. White goods seller AO. World (AO.), which outperformed last year by gaining over 350%, is down 37% in a month and 77% lower this year.

Online betting and financial firms such as Flutter (FLTR) and Plus500 (PLUS) are down by as much as 23% over one month, while Games Workshop (GAW), one of the most unexpected winners of lockdown, has lost 13% in the past month and is also down year to date.

While it seems as though it’s full steam ahead for Christmas, thanks to the rollout of booster jabs, investors should keep an eye out for any signs of a drop in confidence or rotation back into lockdown beneficiaries.

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