Investors who have stuck with the US market over the past 18 months face a decision: is it time to quit while you’re ahead, or stick it out and hope for a rebound?
The S&P 500 was the worst major market UK investors could have owned in 2025, making just 9.3% in sterling terms. Every other major index made at least double-digit gains, with the Eurostoxx topping the charts, up 34.2%.
Surely that was just a blip?
So far, 2026 hasn’t offered much reassurance. In the first six weeks of the year, the S&P 500 has delivered losses, widening the gap with markets such as the Nikkei 225 (up 14%) and MSCI Emerging Markets (up 10.4%). For fans of all things USA, it’s starting to look bleak.
While 14 months is a short timeframe to look at, especially as the S&P 500 has dominated long-term performance tables for more than a decade, this recent underperformance suggests that cracks are starting to appear.
The incredible artificial intelligence (AI)-fuelled bull run is showing signs of fatigue. Earnings among the biggest tech firms remain solid and future spending on AI infrastructure remains promised, but investors are starting to question whether this is a good time to back the tech giants that have rocketed to extreme valuations.
The US market is on a cyclically adjusted price-to-earnings (CAPE) ratio of 39.2x, according to data from Barclays Smart Investor, the second highest of all those measured behind Taiwan. Rarely have good things happened when a market has been this expensive.
Around a year ago, when the CAPE was lower at 37.2x, András Vig, multi-asset strategist at Invesco, noted that, historically, the index has made next to nothing over the following decade. This actually turns negative at today’s CAPE ratio.
Of course, some investors will stick with the US, arguing that it remains the best place for innovation. Others will stay put simply out of habit. And then there are those who fear they have missed the chance to rotate elsewhere, given that so many rival markets have already rallied.
Growth investors who believe it remains the best place for innovation should hold their nerve, although they may have to accept more bumps than they’ve been used to historically.
It is the latter two camps – the ‘I don’t know what else to do’ group and the ‘surely I’ve missed it’ section – that should at least consider making moves.
I am not advocating for selling everything (as one investor I know did last year). After all, the US will undoubtedly have years when it shoots back to the top of the tables and makes this article look foolish.
But evidence is mounting that it is no longer the one-way bet it once. By diversifying now, investors should get a smoother ride and give themselves a chance to outperform a US-heavy portfolio, if they believe in the historic data above.
At the very least, they will be ensuring that the US no longer carries sole responsibility for their success.
If, like me, you believe this, then as the old saying goes, the best time to make a change was yesterday; the next-best is today.
A simple move is to switch US trackers to global ones. They’re still heavily weighted toward America (the US makes up some 71.2% of the MSCI World index), but it at least provides some diversification moving forward.
Better still is building a mix of regional funds, which gives investors the opportunity to manage their geographic allocations more effectively.