For more than a decade after the global financial crisis, betting on US stocks required little explanation.
Strong dollar cycles, tech-led earnings growth, fiscal credibility, and institutional depth justified a structural US overweight.
Returns were strong, leadership was clear, and diversification often felt unnecessary.
But what if this is the beginning of a new market cycle? Indeed, global stocks are outperforming the US again, and the underlying drivers look more durable than many investors expected.
Earnings are doing the work again
A defining feature of the past year has been the alignment between prices and profits.
Wall Street expects earnings to rise across large, mid and small-cap stocks in 2026, not just in a handful of technology giants.
In fact, roughly two-thirds of listed stocks trade above their 200-day moving averages, well above long term norms.
That type of breadth has historically coincided with durable expansions rather than fragile rallies.
The US experience illustrates the point. The S&P 500 rose about 16% in 2025, while earnings growth kept pace.
Outside the US, profit growth has actually accelerated.
According to consensus forecasts compiled by Bloomberg and MSCI, emerging market earnings are expected to grow around 17% annually through 2026, compared with roughly 12% for the US market and closer to 8% for the US equal weight index.
Source: CFA Institute
The signal here is subtle but important. Earnings leadership is no longer concentrated at the very top of the market.
Why global leadership is rotating
In 2025, the MSCI All Country World ex US index gained more than 29%, almost double the S&P 500 return.
Brazil and Canada were the top performers with 48.5% and 35.8%, respectively, with Germany and the UK very close behind.
Early 2026 has extended that pattern. Japan leads major markets year to date, followed by Brazil and China, all while the US is sitting in the middle of the pack.
This kind of dispersion stands out. During speculative periods, capital tends to crowd into the strongest and safest market, compressing returns elsewhere.
The late 1990s and the post pandemic surge both followed that script.
What we see today looks different. Capital is spreading across regions and sectors, which has historically been a feature of mid cycle expansions rather than late stage excess.
History supports this interpretation. Since 1900, US equities have lagged international markets roughly half the time, according to long run datasets.
The post financial crisis era was unusual for its length and consistency.
Fifteen years of US dominance created the impression that global diversification had lost its purpose. The last two years have reopened that question.
The US concentration problem
The challenge for US equities is not economic weakness, but concentration.
By the end of 2025, the ten largest US companies represented about 36% of total US market capitalisation, driven mostly by large technology firms.
Valuations reflect that dominance. US stocks trade at roughly 22 times forward earnings, compared with about 15 times for developed markets outside the US and near 13 times for emerging markets.
Capital flows mirror this imbalance. EPFR data show that more than three-quarters of global equity fund inflows this decade have gone into US assets, even though the US generates less than half of global corporate earnings.
That gap leaves little room for disappointment. Earnings do not need to fall for pressure to build.
They only need to grow less quickly than expected.
AI is no longer a US-only trade
In 2025, AI-related companies accounted for more than 50% of US market returns.
AI investment also contributed meaningfully to US GDP growth through capital spending and wealth effects.
The result is a market that increasingly depends on a single theme. The durability of that theme now carries more weight than diversification.
Source: RBC Wealth Management
But it’s not just the US benefiting from AI. Global markets have regained momentum exactly because AI has spread beyond US balance sheets.
South Korea’s Kospi surged nearly 76% in 2025, its best year since the late 1990s. Japan’s Nikkei rose 26%, lifted by chipmakers and hardware suppliers.
Taiwan Semiconductor gained nearly 47%, while Alibaba climbed more than 75% as it leaned into its own AI ecosystem.
The AI investment cycle is not confined to software. It runs through foundries, memory chips, industrial automation and power infrastructure. Those supply chains sit across Asia and parts of Europe.
Once earnings growth begins to reflect that reality, capital follows, and the AI story is now global.
China and the currency signal
China’s return to investor attention in 2025 and early 2026 has been unusually coordinated.
Chinese equities listed in Hong Kong rose more than 22% last year, while the yuan strengthened over 4% against the dollar, the first time stocks and currency rallied together since 2017.
Source: Bloomberg
Forward valuations remain low at around 11 times earnings, even as earnings growth forecasts climb toward the mid-teens for 2026 and 2027.
Several global banks now expect further yuan strength, with forecasts clustered between 6.5 and 6.8 per dollar.
A firmer currency improves dollar-based equity returns and reinforces capital inflows.
At the same time, China’s export performance, stable banking system and renewed focus on advanced manufacturing have softened concerns about the economy’s weaker areas.
Property and consumption remain problems, although they are no longer the only lens through which investors view the market.
The dollar and the next phase of the cycle
The US dollar fell roughly 9% in 2025, its worst year since 2017. Historically, sustained periods of international equity outperformance have aligned with multi year dollar down cycles.
The dollar enjoyed a 13-year bull run supported by higher growth, tighter policy and capital inflows.
Those supports are no longer as strong. US debt levels are higher, growth gaps are narrowing, and rate differentials are less clear.
Even a stable dollar changes the arithmetic. International returns no longer need heroic assumptions to compete with US assets.
They only need earnings growth and reasonable valuations.
The emerging picture is not a rejection of US markets. It is a return to balance.
Earnings growth is spreading, leadership is rotating, and capital is rediscovering alternatives that were ignored for years.
For investors who spent a decade watching everything converge into one trade, that may be the most important change of all.
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