The US stock market, often viewed as the engine powering the global economy, has faced significant challenges in the early months of 2026. Despite a robust performance from international markets, the US has struggled to keep pace, raising concerns among investors and market analysts alike.
According to recent data from Goldman Sachs, US stocks are experiencing their worst start of the year since 1995, showcasing a stark contrast with the performance of global markets. At a time when investors are typically brimming with optimism for the new year, US stocks have faltered significantly.
In particular, the S&P 500 index, which represents the largest companies in the US, has fallen by 1% since the beginning of the year. This decline stands in sharp contrast to a global market index, which has seen an impressive 8% return. The trend extends over the past year as well; while the US market has achieved a return of 10%, the index tracking global equities (excluding the US) has jumped an astonishing 30%. This divergence is raising eyebrows and prompting investors to reassess their strategies.
Adding to the complexity of the situation is the increasing geopolitical risk originating from within the US. With ongoing uncertainties regarding the Trump administration’s trade policies, including tariffs and erratic comments about international discussions like the annexation of Greenland, investor focus is shifting decidedly towards more stable opportunities abroad. In such an environment, hesitation about US equities is palpable.
Viktor Shvets, head of the global desk strategy at Macquarie, commented on the challenging landscape, noting that “the re-pricing of [the US dollar] and erosion of the spread between the US’s [equity risk premium] and others was brutal” in the preceding year. This sentiment resonates with a growing sense of caution among US investors, who are realizing that appeal may lie elsewhere.
Curiously, even as the US market experiences underperformance, its stocks have continued to grow more expensive. For years following the global financial crisis, price-to-earnings ratios for US companies remained relatively aligned with global counterparts. Yet, over the last decade, fueled by the significant rise in valuations of Big Tech, US price-to-earnings ratios have swelled, averaging 40% higher than those found globally. This has created substantial questions about whether US stocks can sustain such elevated valuations.
Adding to the challenge, the US stock market has become increasingly concentrated in the tech sector. As of December 2025, the top 10 largest companies in the US, including the dominant “Magnificent Seven” tech stocks, along with Broadcom, Eli Lilly, and Visa, accounted for an astonishing 40% of S&P 500 holdings. This concentration has grown from roughly 20% just a decade earlier and raises concerns about potential vulnerabilities should the booming AI sector, which the tech sector heavily leans on, falter.
Goldman Sachs strategists have recently pointed out that the US market trades above a 20x price-to-earnings ratio—this is considered unusually high, particularly given the fact that the “Magnificent Seven” are excluded. Historically, investors have justified this premium by assuming that domestic earnings growth would consistently outstrip international growth. However, with international markets showing stability and emerging economies on the upswing, the justification for such lofty valuations is faltering.
Despite the high valuations in the US, market experts caution that valuations alone do not serve as effective timing indicators. LPL Financial’s chief equity strategist, Jeff Buchbinder, alongside Adam Turnquist, asserts that while valuations may guide sentiment, significant fundamental or technical shifts often catalyze more pronounced movements.
The dynamics within the mergers and acquisitions landscape also substantiate this shifting climate. After a protracted period during which US mergers and acquisition capital flowed predominantly inward, data from Goldman Sachs indicates a reversal in 2025. There were “clear net cross-border M&A outflows” from the US, highlighting an era where US firms began to invest more capital abroad than foreign entities were willing to invest within American markets. This is a telling shift in the global financial landscape, reflecting a more pronounced diversification of investment strategies.
Foreign ownership of US assets has remained stable and hasn’t begun to diminish meaningfully. Yet, according to recent data from the US Treasury Department, the share of US equities owned by global investors has stagnated over the past four years after two decades of consistent growth. This stagnation may not imply an outright exodus from US markets, but it does suggest a notable pause in America’s historical dominance in global capital flows. The cautious approach among international investors signals a shifting landscape where allocation choices are increasingly scrutinized.
Dan Lefkovitz, a strategist at Morningstar, echoed this sentiment by observing that the US stock market appears not only high-priced and top-heavy but also low-yielding compared to its international counterparts. Conversely, international equities entered 2025 with low valuations and have been outperforming expectations, marking an intriguing contrast with US market dynamics. This development leaves investors pondering where the most favorable opportunities truly lie in this complex and rapidly evolving financial landscape.
Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at jake.conley@yahooinc.com.
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