Worst Relative Start in Three Decades
The US stock market, long viewed as the anchor of global growth, has stumbled through the opening months of 2026 while international markets have surged ahead.
According to Goldman Sachs data, US equities are experiencing their weakest start to a year relative to global peers since 1995. The S&P 500 (^GSPC) has slipped about 1% year-to-date, while the MSCI All Country World Index ex-US (ACWX), which tracks developed and emerging markets outside America, has gained 8% over the same period.
The divergence extends beyond 2026. Over the past 12 months, the ex-US index has climbed 30%, triple the 10% return posted by US stocks. The performance gap marks a notable reversal after years of American market dominance.
Geopolitics and the Dollar Weigh on Sentiment
Investor focus has increasingly shifted overseas amid rising geopolitical risk emanating from the United States. Concerns surrounding the Trump administration’s tariff policies, comments about Greenland, and other political developments have added to market uncertainty.
Viktor Shvets, head of global desk strategy at Macquarie, wrote that the repricing of the US dollar and the narrowing equity risk premium spread between the US and other markets proved “brutal” for global investors in 2025.
Meanwhile, despite underperformance, US stocks continue to trade at elevated valuations compared with global peers.
Valuation Gap Widens
In the years following the global financial crisis, price-to-earnings ratios in the US and abroad moved largely in tandem, according to Apollo Global Management chief economist Torsten Sløk. Over the past decade, however, soaring Big Tech valuations have pushed US multiples significantly higher.
Today, US P/E ratios are roughly 40% higher on average than those in the rest of the world. Even excluding the so-called “Magnificent Seven” technology giants, Goldman Sachs strategists note the US market trades above 20 times earnings — an unusually elevated level by historical standards.
Market concentration adds another layer of risk. As of December, the top 10 companies in the S&P 500 — including the Magnificent Seven alongside Broadcom (AVGO), Eli Lilly (LLY), and Visa (V) — accounted for 40% of the index’s weight, double the concentration seen a decade ago. That leaves US equities particularly exposed if enthusiasm surrounding artificial intelligence or large-cap tech fades.
Capital Flows Begin to Shift
Historically, investors justified premium US valuations by pointing to stronger domestic earnings growth. But as international growth stabilizes and emerging markets rebound, that argument is losing force.
LPL Financial strategists Jeff Buchbinder and Adam Turnquist caution that valuations are not precise timing tools. However, they note that when trends shift on fundamental or technical grounds, moves can be amplified if valuations are stretched.
The shift is already visible in cross-border deal activity. Goldman Sachs data from 2025 shows clear net M&A outflows from the United States, reversing a decade-long pattern in which foreign capital flowed more heavily into American markets.
While foreign ownership of US assets has not meaningfully declined, Treasury Department data shows global investors’ share of US equities has plateaued over the past four years after nearly two decades of steady growth.
Morningstar index strategist Dan Lefkovitz summarized the current landscape: US stocks appear “high-priced, top-heavy, and low-yielding” relative to international counterparts, while non-US markets entered 2025 with lower valuations and have since outperformed expectations.
