International Stocks vs S&P 500 Performance Trends

International large-cap stocks are extending their lead over the S&P 500 in 2026, marking a shift from years of U.S.-led market dominance as investors seek geographic diversification and exposure to a weakening dollar [3]. This trend, which began in 2024, has seen $90 billion in capital flow into foreign large-cap blend funds as market participants look beyond the narrow technology leadership that defined recent U.S. performance [3].

The case for international outperformance

The current preference for international equities is driven by a combination of valuation gaps and currency dynamics. Portfolio managers note that large-cap stocks overseas currently trade at lower valuations than their U.S. counterparts, supported by healthy earnings growth and return-on-capital profiles [3]. For U.S.-based investors, a weakening dollar serves as a performance multiplier, effectively juicing the returns of foreign holdings when translated back into domestic currency [3].

This environment has prompted some analysts to draw parallels to the 1970s and 2000s, periods characterized by weak dollar cycles and commodity super-cycles [3]. Consequently, investors are increasingly targeting sectors less prevalent in the S&P 500, such as materials, industrials, and metals and mining [3]. Schwab’s large-cap international ETF (SCHF) has captured $12 billion in new assets since early 2024, reflecting this sustained appetite for non-U.S. exposure [3].

Divergent views on U.S. market resilience

Despite the momentum in international markets, not all analysts agree that the U.S. era of outperformance has ended. Morgan Stanley’s Mike Wilson maintains that U.S. stocks remain a superior bet due to higher-quality business models and less volatile earnings compared to foreign peers [1]. Wilson expects the S&P 500 to hold within a 5,000 to 5,500 point range, noting that a breakout above 5,500 would likely require a tariff deal with China and more accommodative monetary policy from the Federal Reserve [1].

This bullish stance on U.S. equities contrasts with recent guidance from other major institutions. JPMorgan Chase has signaled a preference for international stocks, citing a more favorable risk-reward setup, while Bank of America has advised investors to sell into U.S. rallies and shift capital into bonds and gold [1]. Meanwhile, the sustainability of the dollar-weakness trade remains tied to U.S. fiscal policy, specifically the potential for aggressive bond buybacks aimed at lowering interest rates—a strategy that has drawn skepticism from market observers like Stanley Druckenmiller [3].

What to watch

• Currency Policy: Monitor the implementation of U.S. Treasury Secretary Scott Bessent’s bond-buying plans, which could influence the trajectory of the dollar and, by extension, international equity returns [3].
• S&P 500 Thresholds: Watch the 5,500 index level; Morgan Stanley suggests this remains a technical ceiling that would require significant policy shifts to breach [1].
• Sector Performance: Observe whether the recent strength in international materials and mining companies persists, as these sectors are historically sensitive to both dollar weakness and global commodity cycles [3].

Whether international markets can maintain this lead depends on whether the current valuation gap remains wide enough to justify the shift away from U.S. large-caps. As investors weigh the benefits of geographic diversification against the perceived quality of American firms, the interplay between Federal Reserve policy and currency fluctuations will likely dictate the next phase of global market leadership.