"Buy America" or "Bye, America": Why International Stocks Could Be a Good Buy

Core Viewpoint - U.S. stock investors are experiencing lackluster performance in 2026, with the S&P 500 up only 0.5% year to date and the Nasdaq-100 down approximately 1.2% due to AI fears and a sell-off in software stocks [1][2] Group 1: U.S. Stock Market Performance - U.S.-based investors have withdrawn about $75 billion from U.S. stocks in the past six months, with $52 billion of those outflows occurring since January 1, 2026, marking the fastest pace of withdrawals in the first eight weeks of a new year since at least 2010 [2] - The S&P 500 index has shown minimal growth, while the tech-heavy Nasdaq-100 has faced declines, indicating a challenging environment for U.S. equities [1] Group 2: International Stock Market Performance - International stocks have significantly outperformed U.S. stocks, with some markets like South Korea's rising approximately 177% over the past year [5] - U.S. investors have allocated $26 billion to emerging market stocks in 2026, with South Korea and Brazil being the primary beneficiaries [5] Group 3: Reasons for International Stock Growth - Factors contributing to the strong performance of international stocks include a declining U.S. dollar, concerns over high valuations and risks associated with AI stocks, and favorable policy changes in other countries [7] - Optimism regarding sustained economic growth and rising earnings in international markets is seen as a major driver for the outperformance of international stocks compared to the U.S. market [7] Group 4: Investment Options - The Vanguard Total International Stock ETF (VXUS) is recommended as a viable option for investors looking to diversify away from U.S. stocks, offering exposure to 8,691 stocks with a low expense ratio of 0.05% [8] - VXUS has outperformed both the S&P 500 and Nasdaq-100 over the past year, with an average annual return of 10.6% over the last decade and a price-to-earnings ratio of 19.1, suggesting that international stocks may be undervalued compared to U.S. stocks, which have a P/E ratio of 27.6 [11]