US hockey might be lifting trophies, but US stocks aren’t. This year, international markets have jumped ahead of American equities in a way we haven’t seen in three decades. As I look at the numbers and the headlines, the punch line is simple: leadership rotates, and it may be rotating now. The question is whether opportunities in high-growth sectors, such as the potential SpaceX IPO in 2026, could attract capital from traditional favorites. your portfolio is ready for it.
Why US Stocks Are Lagging Right Now
I’ve managed portfolios long enough to know markets rarely move on a single cause. Today’s gap between US and international stocks is about policy shifts, sector mix, and what investors already priced in. Europe and Japan are spending again. The US is not in retreat, but the heavyweights that powered the last run are catching their breath.
“US hockey has beat the world, but the US stock market has not.”
Here’s the setup as I see it:
- US stocks are off to their worst start versus international markets in 31 years, down roughly 10% while trailing by 15% last year.
- Europe is opening the fiscal taps on defense, which pushes money into companies tied to infrastructure, manufacturing, and security.
- Japan is pumping spending into its economy, supporting banks, exporters, and domestic demand.
- The “Magnificent Seven” are down about 5% year to date and still make up roughly 35% of the S&P 500.
- AI enthusiasm isn’t gone, but the trade’s heat has cooled as earnings must carry the story.
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The Policy Tailwinds Abroad
Europe’s decision to spend more on defense is not just political news. It’s market-moving. Defense budgets ripple through supply chains—steel, electronics, software, logistics—often for years. Government contracts create revenue visibility. Markets like that. Equity investors also tend to pay higher multiples for dependable cash flows.
Japan is taking a different path, but with a similar effect. Policymakers are using public spending to push growth and help the economy exit a long period of low inflation and cautious corporate behavior. When the government primes the pump, activity picks up. That supports earnings for banks, industrials, and consumer names that benefit from more lending, construction, and spending.
Both regions are moving from policy headwinds to policy tailwinds. Investors have been underweight these markets for years. That underweight can flip fast when relative growth and earnings momentum improve.
The US Heavyweights Are Catching Their Breath
The Magnificent Seven—household names tied to tech and AI—dominated the last cycle. Their profits, balance sheets, and cash generation earned that position. But after a massive run, expectations were sky-high. When the bar is that high, perfection is the price of admission.
This year, the group has slipped around 5%. That doesn’t mean the companies are broken. It does mean the market is asking tougher questions. How fast can AI monetization scale? What margins are sustainable? Which projects turn from slideware to real revenue? And how much of that future is already in the stock price?
“Those magnificent seven stocks, they ain’t working right now… The AI trade [is] losing its luster.”
When leadership stumbles, the S&P 500 feels it because these names are such a large slice of the index. Concentration cuts both ways. On the way up, it looks brilliant. On the way down, it bites.
Have We Hit a Tipping Point?
I think we’re close to a handoff. Not a crash. A rotation. US mega-cap growth drove the last leg. Now policy, valuation, and earnings momentum abroad could take the baton. Markets love fresh stories. Europe’s defense build-out and Japan’s economic push provide that. Meanwhile, US tech is shifting from promise to proof. That takes time.
Rotations don’t need a crisis. They can be slow and still change returns in a big way. Think of the early 2000s when US large-cap growth cooled and international and value stocks took the lead. It wasn’t a mirror image of the dot-com bust everywhere else. It was a change in where profits and surprises showed up.
What This Means for Your Portfolio
This is where discipline matters. If your portfolio is “90% S&P 500,” you’re making an active bet, even if you think it’s passive. You’re betting that the same seven stocks can keep pulling the entire market higher. That may work again. It also may not.
Here are the moves I’m weighing and why they can help reduce regret later:
- Revisit regional balance: Consider whether international exposure reflects today’s reality, not yesterday’s trend. Underweight can become a performance drag during a rotation.
- Check concentration risk: If a third of your equity risk sits in seven companies, decide if you are comfortable with that. If not, spread it out.
- Diversify factors: Blend growth with value, quality, and dividend payers. Different factors lead at different times.
- Mind currency: International returns include foreign exchange. Decide if you prefer hedged or unhedged exposure depending on your view and risk tolerance.
- Rebalance with purpose: Set rules. Trim winners. Add to laggards with improving backdrops. Avoid turning rebalancing into market timing.
Why International Could Keep Its Edge
One reason is simple starting points. Valuations overseas tend to be lower than in the US, especially within Europe and Japan. Lower entry prices mean more room for positive surprises. If earnings come in a bit better, the stocks can rerate higher. If policy boosts cash flows, that helps too.
Sector mix plays a role as well. International indexes often hold more financials, industrials, and materials. These sectors benefit when economies spend on defense, build infrastructure, and lend more. The US index is heavy in tech and communication services. Those sectors can do well, but they now carry a higher burden of proof.
Finally, earnings breadth matters. If more companies are growing their profits, markets tend to reward that breadth. Europe and Japan are showing signs of broader participation. Momentum often follows earnings, not headlines.
Where AI Fits From Here
AI is real, and it will keep pushing change across many industries. But markets can outrun adoption curves. In the early innings, investors pay up for the story. In the middle innings, they demand operating leverage. We’re moving from story to scorecard. That transition can be choppy, even if the long-term path is intact.
As a planner and portfolio manager, I want exposure to AI, but not at any price and not only through one narrow set of names. The theme touches semiconductors, software, cloud infrastructure, networking, power equipment, and even industrial automation. There are many ways to own the future without putting every chip on a single square.
Risk Management Without Drama
I’m not a fan of wholesale swings. Big, sudden shifts often backfire. I prefer steady changes that line up with a written plan. The aim is to own leaders and emerging leaders while reducing single-bet risk. That’s especially true after long runs, when narratives feel safest and valuations feel stretched.
One practical step: set ranges for US, developed international, and emerging markets. Review them on a schedule. If one sleeve runs hot and drifts above its range, trim it. If another sleeve is under its range but improving, add to it. This keeps emotions in check.
The Investor’s Checklist Right Now
Markets send signals before headlines catch up. Europe’s defense push and Japan’s spending are not small signals. The stumble in US mega-cap growth is not, either. If leadership is rotating, the winners of the last cycle won’t vanish. They may just share the stage.
Here’s a simple checklist I’m using today:
- Confirm your allocation to international equities and decide if it reflects current opportunities.
- Measure how much of your equity risk sits in the top ten US holdings.
- Blend growth with value and quality to smooth return paths.
- Use rebalancing to act, not react, when markets move.
- Keep cash needs and time horizon front and center.
The Heart Of The Question
“Have we just begun the tipping point away from the incredibly expensive Mag 7s? And if so, why is your portfolio still 90% S&P 500?”
I ask that not to stir fear, but to spark review. Markets change. Leadership rotates. Policy shifts matter. Right now, Europe and Japan carry fresh catalysts. The US still has great companies, but the biggest names are pausing while they prove the next leg of growth.
As CEO of LifeGoal Wealth Advisors and as a CFP and CIMA, my job is not to predict every turn. It’s to prepare for reasonable paths and protect clients from overconfidence in yesterday’s winner. If we’re at a handoff, we don’t need heroics. We need balance, patience, and a rules-based plan.
US hockey is winning. US stocks are not, at least for now. That gap won’t last forever. But while it does, thoughtful diversification can turn a headwind into an opportunity. Review your exposure. Trim concentration. Add balance. If leadership is shifting, small moves made early can make a big difference later.
Frequently Asked Questions
Q: How much international exposure should a typical investor consider?
There’s no one-size answer, but many global models allocate 30% to 50% of equities outside the US. The right mix depends on risk tolerance, goals, and time horizon.
Q: What if AI stocks rebound—won’t I miss out by diversifying?
Diversification doesn’t mean abandoning AI. It means pairing those holdings with other drivers of return. If AI outperforms, you still benefit while limiting single-theme risk.
Q: Should I hedge currency risk in international stocks?
Hedging can reduce currency swings in developed markets, but it’s not free. Many investors blend hedged and unhedged funds to balance volatility and potential long-term gains.
