Why Best International Stocks Are Positioned for Extended Gains in 2026

For nearly two decades following the 2008 financial crisis, U.S. equities reigned supreme, relegating best international stocks to the sidelines of investor portfolios. But 2025 marked a pivotal shift in market dynamics. International and emerging market equities finally broke through, delivering performance that surprised even seasoned observers. The real question now: was this merely a brief respite, or the beginning of something more substantial?

The 2025 Reversal: When International Markets Found Their Moment

Last year painted a striking picture of changing market momentum. The iShares MSCI EAFE ETF (tracking developed international markets) surged 31.6%, while the SPY benchmark climbed 17.7%. Even more impressive, emerging markets represented by the iShares MSCI Emerging Markets ETF surged 34%, doubling down on the rotation theme.

What catalyzed this unexpected turn? The narrative wasn’t primarily about abandoning U.S. technology stocks—though that certainly played a supporting role. Rather, the core driver stemmed from a fundamental rotation: investors rotated out of pricey growth equities and toward value-oriented opportunities. As labor market weakness emerged and retail spending softened, institutional money sought refuge in reasonably priced securities rather than continuing to chase expensive valuations.

Critically, the weakening U.S. dollar provided substantial tailwinds. International assets priced in foreign currencies became cheaper for dollar-denominated investors, amplifying returns. Capital flows reflected this shift, with international and emerging market equity ETFs attracting nearly twice as much fresh capital as their U.S. counterparts throughout 2025.

Why Best International Stock Opportunities Look Compelling

Several structural advantages suggest international stocks could extend their outperformance run well into 2026.

The Valuation Disconnect Creates Real Opportunity

The valuation landscape presents an almost textbook case for rebalancing. The S&P 500 trades at roughly 29 times forward earnings—historically elevated territory. By contrast, developed international markets command 19x multiples, while emerging markets trade at 18x. This 40%+ discount to U.S. valuations isn’t accidental; it reflects years of underperformance breeding investor skepticism. Yet from a fundamental perspective, the gap appears difficult to justify when considering growth trajectories and economic conditions.

Earnings Acceleration Provides Hidden Fuel

Europe and other developed regions experienced near-stagnant earnings in 2025. Consensus estimates for 2026 flip this script dramatically. Forecasters expect high single-digit to low double-digit earnings growth across developed and emerging markets—a meaningful acceleration that could provide genuine support for equity appreciation beyond pure valuation expansion.

Fiscal stimulus initiatives (particularly in Germany), productivity improvements, and the aforementioned weaker dollar could all amplify growth potential. When earnings growth accelerates, valuations typically re-rate upward, creating a potential dual catalyst for best international stocks.

Diversification Beyond Tech Concentration

A subtle but crucial distinction separates international portfolios from their U.S. equivalents. Developed and emerging markets maintain far lower exposure to technology than the S&P 500, which remains heavily weighted toward the “Magnificent Seven” mega-cap concentration. International equity markets derive growth from diverse sectors—financials, industrials, consumer staples, healthcare—creating fundamentally different return patterns and reducing single-sector risk.

This compositional diversity means international stocks won’t rise or fall strictly in tandem with U.S. sentiment. Their more balanced economic drivers could prove valuable in an increasingly uncertain macro environment.

Obstacles That Deserve Attention

Despite the improved setup, several headwinds could derail the international equity rally.

Geopolitical Tensions and Trade Uncertainty

Global trade remains contested terrain. Rising protectionism and tariff rhetoric create genuine uncertainty, particularly affecting export-dependent economies concentrated in international markets. Any meaningful escalation in trade barriers could directly constrain overseas growth rates and compress valuations.

Currency Headwinds Would Reverse Recent Gains

The dollar’s recent weakness proved central to international stocks’ 2025 success. A sustained rebound in the dollar index would immediately handicap foreign currency returns for U.S.-based investors, acting as a significant drag even if foreign equities appreciate in local currency terms.

Cyclical Sensitivity Cuts Both Ways

International markets exhibit greater cyclical sensitivity than the U.S. indexes. Manufacturing slowdowns or trade disruptions historically impact overseas economies more severely. Should global economic momentum decelerate, international stocks would likely face outsized pressure.

The Case for Patient Capital in International Markets

Stepping back reveals a compelling strategic picture. The outperformance of U.S. stocks from 2009 through the mid-2020s was so prolonged that best international stocks have become genuinely overdue for an extended run of their own.

Investors consistently favored U.S. growth and technology dominance—a preference that made both cyclical and valuation sense during specific market environments. That regime now appears to be shifting. Value is experiencing renewed investor enthusiasm. International markets offer both lower valuations and stronger expected earnings growth, precisely the combination that powers extended bull markets.

If emerging and developed market companies deliver on their growth projections, 2026 could mark another strong chapter for international investing. The stage appears set, the valuations compelling, and the economic backdrop supportive. The pendulum that favored U.S. equities for nearly two decades may finally be ready to swing back.