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Are international equities signaling a shift in investment leadership?
In recent years, the landscape of global investing has experienced notable transformations. As we enter 2026, international equities are outperforming their U.S. counterparts, suggesting a potential turning point for investors who have traditionally favored U.S. markets. The robust earnings growth observed in regions such as Europe, Japan, and emerging markets raises a critical question: Is this merely a temporary trend, or are we witnessing the emergence of a new era in investment leadership?
Market leadership has historically been cyclical, with dominance shifting between regions and sectors over time.
Following the global financial crisis, U.S. stocks surged ahead, driven by technological advancements and economic resilience. However, recent data indicates that the tide may be shifting. International equities are gaining traction, prompting investors to consider a more diversified investment strategy.
A historical overview of market cycles
The patterns of market leadership illustrate that no single region maintains its dominance indefinitely. Each decade presents its own defining market theme. For instance, the Nifty Fifty phenomenon in the 1960s and 70s demonstrated how even the most renowned companies could decline after a period of supremacy. In contrast, the 2000s marked a significant rise in emerging markets and commodities, highlighting new avenues for growth.
As of 2026, international equities have surpassed U.S. stocks by approximately 17 percentage points. This substantial outperformance is particularly noteworthy, given the previous years of U.S. market dominance. Contributing factors to this shift include narrowing growth differentials, enhanced corporate fundamentals in various international markets, and renewed policy momentum across key economies.
Signs of changing investor sentiment
Over the past 75 years, dominant investment trends have often transitioned into new opportunities. For instance, while U.S. equities have seen an annualized outperformance of approximately 8% since the financial crisis, such performance is not typical. Research from UBS reveals that U.S. equities have underperformed compared to international counterparts nearly half the time since the 1900s.
Current market evaluations indicate that U.S. stocks are trading at over 22 times their projected earnings for the next 12 months, approaching levels reminiscent of the dot-com bubble. In contrast, emerging markets exhibit significantly lower valuations at around 13 times projected earnings, while international markets outside the U.S. stand at approximately 15 times. This disparity in valuations suggests that investors may be overly concentrated in U.S. assets, despite the fact that the U.S. constitutes a smaller share of global earnings.
Reassessing U.S. exceptionalism
The concept of U.S. exceptionalism is often associated with the nation’s robust institutions, innovative landscape, and free market economy. However, as market cycles evolve, the advantages that once solidified the U.S. as a global leader are increasingly facing challenges. The prolonged dominance of U.S. equities over the past 15 years has been bolstered by favorable post-crisis valuations, but the landscape is shifting.
Recent forecasts from the International Monetary Fund indicate that over 80% of major emerging markets are expected to experience faster growth than the U.S. in the coming years. Furthermore, projected earnings growth in these markets is estimated at 17% in U.S. dollar terms from 2026 to 2026, compared to 12% for the U.S. and just 8% for the U.S. equal-weight index. This trend suggests a potential realignment of investment strategies towards international markets.
The role of the U.S. dollar
Historically, outperformance in international markets often aligns with periods of U.S. dollar weakness. The dollar, despite its role as a reserve currency, has undergone multiple multi-year bear markets, averaging declines of approximately 40%. Given the current context following an extended bull run, expectations for a prolonged dollar upswing seem limited.
Additionally, the significant role of artificial intelligence (AI) within the U.S. equity landscape merits attention. In 2026, AI has been responsible for 70% of market returns, and its influence extends beyond stock performance to affect broader economic growth. However, investors must evaluate whether this AI-driven expansion can maintain its momentum over the long term.
Future outlook for global markets
Global investment landscape in 2026
As the year 2026 unfolds, the global investment landscape is undergoing significant transformation. International markets are showing signs of structural improvement and promising growth prospects. This creates an appealing opportunity for diversification and asset reallocation outside the United States. Recent policy reforms across Asia and Europe, coupled with enhanced fiscal capacities, suggest that these markets are not only recovering but also establishing robust frameworks for sustainable growth.
Given this evolving landscape, investors are encouraged to reassess their strategies. Embracing the potential benefits of diversifying portfolios internationally can yield substantial advantages. With changing market leadership dynamics, the coming years may signify a more equitable distribution of investment opportunities beyond U.S. borders.
