Yaron: stock market overperformed most others in 2025, 2026

Yaron: stock market overperformed most others in 2025, 2026

International Equities Outperform U.S. Markets in 2025, With Momentum Expected to Continue in 2026

In 2025, international stocks significantly outperformed their U.S. counterparts, marking a notable shift in global equity markets. The Morningstar Global Markets ex-US Index rose 32% in U.S. dollar terms, compared to a 17% gain for the Morningstar U.S. Market Index according to Morningstar data. This trend, reminiscent of the early 2000s, reflects a combination of U.S. policy-driven investor caution and stronger fundamentals in international markets. By January 2026, the outperformance continued, with the ex-US index gaining 6% versus 1.5% for the U.S. benchmark as reported by Morningstar.

The shift has been dubbed the "Sell America Trade," driven by concerns over U.S. trade policies, fiscal deficits, and geopolitical tensions, including tariff threats and debates over U.S. global ambitions according to Morningstar analysis. Meanwhile, international markets benefited from favorable macroeconomic conditions, corporate governance reforms (e.g., Japan), and improved profitability in regions like Europe and China. The AI boom also played a role, with non-U.S. tech leaders such as ASML and Asian firms gaining traction as noted in Morningstar reports.

Valuation dynamics further supported international equities. Many non-U.S. markets entered 2025 at lower price-to-earnings ratios due to prior underperformance, offering attractive entry points according to Morningstar data. Morningstar's 2026 Global Investment Outlook highlights continued potential in emerging markets (e.g., Brazil, Mexico) and developed markets like the U.K. and Europe, alongside a projected cyclical weakening of the U.S. dollar as detailed in the Outlook.

While U.S. stocks remain dominant—accounting for 62% of global equity market value—they are increasingly seen as overextended relative to fundamentals according to Morningstar analysis. International diversification, experts argue, mitigates risks tied to U.S.-centric trends like AI-driven tech sector concentration.

Investors are advised to weigh long-term strategic benefits of global exposure, including hedging against U.S. policy risks and accessing innovation beyond domestic borders. As markets evolve, the 2025 shift may signal a broader realignment in global equity dynamics.

Morningstar Indexes, "Why International Stocks May Win Gold Again in 2026," January 2026: Morningstar Indexes, "Why International Stocks May Win Gold Again in 2026," January 2026.