The US is coming off a period of remarkable equity-market dominance. Over 11 of the past 15 years, US equities outpaced their non-US peers—sometimes by sizeable margins. But last year, the pattern reversed dramatically.
In 2025, the MSCI EAFE Index of non-US developed-world stocks surged by 31.2% in US-dollar terms, while the S&P 500 rose 17.9%. Even after this outperformance, valuations are still well below those of the US.
While these returns were buoyed by a weakening US dollar, non-US stocks delivered a strong 20.6% gain in local-currency terms as well. Are we in a new dawn for international stocks? Time will tell, but we believe conditions are favorable for investors looking to diversify US-heavy allocations in 2026.
Concentration Risk Is Lower in Non-US Markets
One reason for US dominance in recent years—and a potential risk—is growing market concentration. At the dawn of 2026, the top 10 US stocks made up a near-record 40% of the S&P 500 by market capitalization. That’s double the broader market’s concentration as recently as 2010. Increasingly, the technology sector and so-called Magnificent Seven mega-cap stocks have dominated the market and together now comprise 48% of the S&P 500 by market cap.
Why does this matter? High concentration means relatively few names have the power to drag down returns during periods of market stress. Put another way, high US market concentration dilutes the benefits of diversification, subjecting investors to the whims of a small number of companies in just one sector—resulting in a substantial increase in the volatility of the S&P 500 relative to the rest of the world.
By contrast, the top 10 stocks in non-US markets comprise just 13% of the broader market, which means more sector allocation opportunities and greater diversification potential (Display).
