US Stocks Lag Global Markets
The U.S. stock market has underperformed globally in 2026, with the S&P 500 in negative territory year-to-date. Emerging markets are leading with the iShares MSCI Emerging Markets ETF (EEM) up more than 6%, while global ex-U.S. equities (ACWX ETF) gained over 5%. Despite short-term rebounds on March 4 as oil prices stabilized, volatility remains elevated amid Middle East tensions.
The underperformance of U.S. stocks in early 2026 marks a potential turning point after years of American market dominance. In January 2026, international stocks outperformed the S&P 500 by nearly 8 percentage points, prompting record-breaking inflows into international ETFs. This continues a trend from 2025, when non-U.S. stocks returned 30%, significantly outpacing the S&P 500. A weakening U.S. dollar has been a primary catalyst for this shift, enhancing the value of foreign investments for U.S.-based investors. Concurrently, emerging markets are benefiting from structural growth trends, including supply chain diversification and investments in AI and digital infrastructure. Analysts project that earnings in emerging markets could grow by 29% in 2026, more than double the 14% growth expected for the U.S. Valuations also favor international markets, with many trading at a significant discount compared to their U.S. counterparts. After years of underperformance, some analysts believe global equities are undervalued, while the price-to-earnings ratio of the U.S. market is, on average, 40% higher than other regions. This disparity is attracting investors seeking diversification away from the high concentration in U.S. mega-cap technology stocks. Heightened geopolitical risks originating from within the U.S., such as tariff policies, have also played a role in shifting investor sentiment. While the Middle East conflict has introduced global volatility, it has particularly impacted energy-reliant Asian economies, with South Korea's market seeing its worst day since 2008. The U.S. Navy's potential to provide safe passage for oil tankers has helped stabilize oil prices, but uncertainty remains.
