The narrative around U.S. market dominance has a way of reasserting itself. International equities entered 2026 with momentum, having outperformed U.S. stocks in 2025 and continuing that leadership into the early weeks of the year. Then geopolitical escalation in the Middle East and surging AI-driven semiconductor earnings snapped investors' attention back to the technology-heavy U.S. market. The same question that has defined the past decade and a half surfaced again: is U.S. exceptionalism structural or cyclical? In the first of a three-part series on international equities1, published July 23, 2026, Artisan Partners' Portfolio Perspectives team offers a disciplined, historically grounded answer.
How the U.S. Got Here
The team is direct about the magnitude of U.S. outperformance since the global financial crisis. A hypothetical investment in the S&P 500 grew to more than twice the value of comparable investments in the major developed and emerging international equity benchmarks from the March 2009 bottom through June 2026. That is not a rounding error. It is a structural gap, and the team identifies its three primary drivers: earnings growth from mega-cap technology companies, multiple expansion, and a persistently strong U.S. dollar.
The valuation dimension matters most for what comes next. "Investors also became willing to pay increasingly higher multiples for those earnings — a phenomenon known as multiple expansion — boosting valuations and further amplifying returns." Those three forces compounded one another for more than 15 years. The team's central question is whether they will continue to do so.
The Permanence Trap
The team identifies a cognitive hazard that advisors should recognize in their own clients: "The longer a trend persists, the easier it becomes to mistake it for permanence." That sentence carries a great deal of weight. Investors who anchored to U.S. leadership as the new normal through much of the 2010s were not irrational. They were simply pattern-matching on a trend that happened to be historically unusual. "Leadership between US and international equities has never been permanent. Historically, periods of sustained US leadership have eventually given way to periods in which international equities outperformed."
The Dollar Is a Variable, Not a Constant
One of the more underappreciated dimensions of the U.S. cycle is currency. A strong U.S. dollar amplified the S&P 500's relative returns throughout the post-GFC period. The team is clear about the implications of reversal: "If the dollar weakens following a multiyear period of strength, the tailwind would reverse." On the drivers of potential dollar weakness, the team cites shifts in monetary policy, trade policy uncertainty, persistently large U.S. fiscal deficits, and de-dollarization by sovereigns diversifying their reserve holdings. The team is equally clear that predicting currency movements "is essentially a fool's errand." The point is not a call on the dollar. The point is that a tailwind that has quietly turbocharged U.S. returns for over a decade is not a permanent feature of the investment landscape.
Concentration as Vulnerability
The U.S. equity index concentration argument is quantified with precision. "Today, the 10 largest companies account for nearly two-fifths of the S&P 500® Index — the highest level since the 1960s." The consequence is straightforward: "index performance has become increasingly dependent on the earnings growth and valuations of a relatively small group of companies." The team adds a structural wrinkle specific to the AI era. Many of the largest technology companies historically enjoyed dominant positions in largely distinct markets. "The rapid evolution of AI is beginning to blur those boundaries, with many of the industry's largest players now competing for overlapping sources of future revenue." Competitive moats are not permanent. The team does not predict disruption; it reminds investors that even market leaders are not immune to changing competitive dynamics.
Valuation: The Starting Point That Matters
The team's closing argument rests on starting valuations. U.S. equities continue to trade at a sizable premium to their long-term average. International developed markets trade modestly above their historical averages. Emerging markets remain the least expensive major equity market, trading near long-term valuation norms. The team connects this directly to future return potential: "Although valuations rarely determine short-term returns, they have historically influenced long-term return expectations." Lower starting valuations also provide a buffer. "Markets trading at unusually high valuations leave less room for disappointment, while lower starting valuations may provide greater scope for multiple expansion when fundamentals improve."
Five Key Takeaways for Advisors and Investors
1. The post-GFC U.S. outperformance cycle was driven by three distinct forces: mega-cap earnings growth, multiple expansion, and dollar strength. None of those forces is guaranteed to persist, and all three are now under varying degrees of pressure.
2. Concentration in the S&P 500 is at its highest level since the 1960s. Nearly 40% of the index is tied to ten companies. That is not diversification. It is a highly levered bet on a narrow set of outcomes.
3. The dollar tailwind is a real and underappreciated component of U.S. relative returns. A reversal would mechanically shift the return calculation in favour of international markets, even before any change in underlying fundamentals.
4. AI is intensifying competitive overlap among the largest U.S. technology companies. Investors should not assume that the earnings dominance that justified elevated valuations will continue uninterrupted as competitive boundaries blur.
5. Starting valuations set the long-term return floor. Emerging markets in particular remain near long-term valuation norms. Historically, that starting point has mattered more over five- and ten-year horizons than over any single quarter.
The series continues with part two, which addresses what international diversification actually provides beyond geographic flag-planting, and concludes with a discussion of why international market characteristics create opportunities for active management and security selection.
Footnote:
1 Portfolio Perspectives. "Where Are We in the Current Cycle — and How Did We Get Here?" Artisan Canvas, Artisan Partners, 23 Jul. 2026, https://www.artisancanvas.com/en/posts/where-are-we-in-the-current-cycle-and-how-did-we-get-here-.html.
