U.S. stock investors may currently find themselves disillusioned with their portfolios as 2026 unfolds. The S&P 500 index has demonstrated a lackluster performance, rising just 0.5% year to date, while the tech-heavy Nasdaq-100 index has seen a decline of approximately 1.2%. This downturn is largely influenced by growing concerns surrounding artificial intelligence (AI) and a significant sell-off in software stocks.
While American markets struggle to gain momentum, international stock markets are witnessing considerable growth. Recent research from LSEG/Lipper highlighted that U.S.-based investors have withdrawn around $75 billion from U.S. stocks over the past six months, with $52 billion of that figure occurring since the start of 2026. This trend marks the most accelerated outflow of capital from U.S. stocks during the early weeks of a new year since at least 2010.
Analysts are beginning to speculate whether a long-term trend of moving away from American stocks may emerge. Many are advocating for the inclusion of international stocks in a diversified portfolio to take advantage of this shift. Over the past year, various international exchange-traded funds (ETFs) have significantly outperformed U.S. markets. Notably, South Korea’s stock market has surged by roughly 177%, with substantial capital inflow into emerging markets, including $26 billion directed into them thus far in 2026.
Several factors could be contributing to the strong performance of international stocks. A depreciating U.S. dollar, investor anxieties over high valuations associated with AI stocks, and newly favorable policies in several countries are key elements. However, the primary driving force appears to be optimistic projections for sustained economic growth and rising corporate earnings outside of the United States. Even if the U.S. market continues to expand, the potential for international stocks to outpace these gains remains strong.
For those interested in entering international markets, the Vanguard Total International Stock ETF (NASDAQ: VXUS) presents an appealing option. This ETF allows investors to acquire shares in 8,691 global stocks simultaneously, featuring a low expense ratio of just 0.05%. The fund encompasses significant stock markets across Europe, Emerging Markets, and the Pacific regions. Over the past year, VXUS has outperformed both the S&P 500 and Nasdaq-100 indexes, boasting an average annual return of 10.6% over the last decade. Its price-to-earnings ratio stands at a relatively modest 19.1, suggesting that international stocks may still be undervalued compared to their U.S. counterparts.
Investors are advised to tread cautiously before committing to the Vanguard Total International Stock ETF. Although it offers a straightforward way to diversify away from the U.S. economy, it is worth noting that the Motley Fool Stock Advisor team has identified what they believe are the top ten investment opportunities right now, which notably do not include this ETF. Historical data shows significant returns for stocks in the advisory’s past recommendations, highlighting the potential for substantial gains when investing in high-performing individual stocks.
In conclusion, while the U.S. stock market faces a period of stagnation, an opportunity for growth exists internationally. The Vanguard Total International Stock ETF may serve as a viable avenue for investors aiming to diversify their portfolios as optimism for international markets continues to rise. However, as always, past performance does not guarantee future results, and investors should remain informed about market dynamics.
