US Stocks Lag Global Markets
Emerging markets and developed non-U.S. stocks are leading 2026 with gains of 5-6% while the S&P 500 sits in negative territory. The iShares MSCI Emerging Markets ETF (EEM) is up over 6%, and the iShares MSCI ACWI ex U.S. ETF (ACWX) gained more than 5%. This shift reflects relative economic resilience abroad and investor search for diversification amid U.S. uncertainty.
This early 2026 trend extends a pattern from 2025, when international stocks outperformed the U.S. by the largest margin in over two decades. The Morningstar Global Markets ex-US Index surged 32% in 2025, nearly double the 17% gain for the U.S. market. A primary driver is the weakening U.S. dollar, which fell over 9% in 2025 and has continued its decline. For U.S. investors, a weaker dollar provides a direct boost to returns from assets denominated in foreign currencies like euros or yen. Valuations are also a key factor; international equities are trading at a significant discount. Non-U.S. stocks were recently about 35-40% cheaper than their U.S. counterparts based on forward price-to-earnings ratios, making them more attractive to investors looking for value. While U.S. markets contend with a pullback in technology stocks amid concerns about the sustainability of the AI boom, foreign markets are benefiting from different catalysts. Germany is implementing a massive fiscal stimulus plan, while Japan is undergoing shareholder-friendly corporate reforms. Emerging markets, in particular, are forecast to see earnings grow by 29% in 2026, more than double the 14% expected for the U.S. This growth is partly fueled by a boom in commodity prices, benefiting resource-rich countries like Chile, Peru, and South Africa. The outperforming ETFs hold major global players. Top holdings in the Emerging Markets ETF (EEM) include Taiwan Semiconductor, Tencent, and Samsung. The ACWI ex U.S. ETF (ACWX) is also heavily weighted in names like Taiwan Semiconductor and Samsung, alongside major European firms such as ASML and Roche.
