My personal motto is “consistency, no room for errors,” which drives my kids and wife crazy. I try to find what works and stick with it. I don’t need restaurant menus because I’m going to order the same thing every time. Investors do the same thing. US stocks almost always outperform the global market, so they stick with what works. Well, things are starting to change on that front.
2026 is shaping up to be a really big year for international stocks. Many of the global indexes are outperforming the S&P 500 this year. Korea’s KOSPI is up over 30% year-to-date, the NIKKEI in Japan is up over 13%, and stocks in the Europe 600 are up over 5%. For context, the S&P 500 is up less than 1% year-to-date as of February 18, which hasn’t been the case for much of the last decade.
The lead the US has had over the rest of the world in investment returns has been shocking. For example, if a person had invested $10,000 in 1992 in the US’s S&P 500 and also invested $10,000 in the MSCI World index, there would have been wildly different results. The 10k in the S&P 500 would have grown to over $340,000, while the international investment would have only grown to just over $165,000 between 1992 and 2025.
For years, it seemed like investing in US companies was the only way that investors could see significant growth. Though we haven’t seen US stocks give up their lead to other countries, we are seeing investors take a fresh look at international equities.
Investors are taking notice and beginning to invest abroad. I see three reasons for this new interest. First, there is the weakening dollar. We’ve seen the dollar slide roughly 10% from its 2022 highs. A weaker dollar helps international stocks by raising the value of those companies’ earnings relative to American companies. If those companies left their earnings in euros, that money is now more valuable relative to the US dollar on the exchange rate alone.
Second, there are developments abroad that are boosting the economies of those countries. The obvious one is Europe’s massive defense spending. I read a shocking Wall Street Journal article recently about a war simulation that showed just how vulnerable Europe is to a Russian invasion. The European leaders who organized the simulation know that as well and are trying to build up their military defenses at a fast clip. On top of that, Japan’s government is about to inject even more stimulus into its economy and announced this week a $36 billion investment in US oil, gas, and minerals projects, which investors seemed to like.
Third, there is increasing chatter among analysts about concentration risk in the US stock market. Investors who invest solely in the S&P 500 or a total stock-market index fund currently hold over 30% of their money in seven companies closely linked to artificial intelligence. That high concentration poses a potential risk if they all struggle at the same time. This is leading many professional investors to diversify their portfolios as a hedge against the tech sector, with those dollars finding a home in international stocks.
This is not a case where US stocks or the S&P 500’s lead on the rest of the globe will evaporate. That is unlikely because the US has so many key fundamentals in its favor. Most investment analysts still believe the US will outperform global equity markets over the next several years, though not as much as it had recently. This is why the hunt for good stock investment opportunities is starting to drive investors to look beyond the US borders.
My wife is starting to push me to try other things. Though I am a dedicated meat-and-potatoes guy, I recently tried raw fish in sushi and didn’t die. However, she bought me new dress socks without the little lines at the top to tell me if they are blue or black, which might be more than I can handle. Like other investors, I am open to broadening my horizons, but let’s not get too carried away.
Have a blessed week!
Richard Baker
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.
The MSCI EAFE Index is a free float-adjusted market capitalization index designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following developed country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the UK.
All investing involves risk, including loss of principal. No strategy assures success or protects against loss.
The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.