International Equities Performed Last Year. But What About 2026?

Let’s go abroad.

The US may be home to the biggest stocks on the planet — ahem, Mag 7 — but it’s not the only game in town. International markets had an exceptional 2025, with the MSCI All Country World ex-US Index jumping more than 30%, compared with the S&P 500’s roughly 16% gain. It’s the former index’s best performance since 2009, when it surged 37%. That means US clients with meaningful international diversification were rewarded, leaving the obvious question: Will 2026 be round two?

“I’d expect another good year simply because foreign markets were down for quite a few years,” said Daniel Galli, a CFP and founder of Daniel J. Galli & Associates. 

Foreign Exchange Program

Looking beyond the US is a common diversification tactic, but it paid off in a particularly big way for American investors in 2025 thanks to a convergence of factors:

• The dollar posted its weakest year in nearly a decade. The Bloomberg Dollar Spot Index fell more than 8% in 2025, boosting returns for US investors holding foreign assets. That trend could continue in 2026 if the Federal Reserve continues to cut rates.

• Valuations also played a role. Stocks in Europe, Japan and emerging markets entered 2025 trading at steep discounts relative to US equities, according to Hartford Funds. During the first half of the year, the MSCI ACWI ex-US Index was priced at roughly a 35% discount to the S&P 500, giving international markets more room to run.
• Semiconductor and artificial intelligence exposure lifted Japanese and South Korean equities, with Japan’s Nikkei 225 surging about 26% in 2025, CNN reported. European economies were boosted by government defense spending.

Not So Fast. While that all sounds exciting, there’s little reason to overhaul allocations, said Hardik Patel, founder of Trusted Path Wealth Management, who plans to keep international equities at just over 30% of clients’ stock portfolios. “The rationale remains the same: diversification, currency exposure, valuation opportunities and differentiated economic drivers,” Patel said. “While risks remain, we believe they’re balanced by long-term tailwinds and the risk-reduction benefits of global diversification.”