The U.S. is not the place to be for investors in 2026 so …

International stocks remain compelling for investors even amid heightened fears from the U.S.-Iran conflict this week.

One significant trend has emerged this year: The biggest winners this year are abroad. Emerging markets stocks represented by the iShares MSCI Emerging Markets ETF (EEM) are higher by more than 7% this year, while all non-U.S. equities in the iShares MSCI ACWI ex U.S. ETF (ACWX) gaining more than 5%. The U.S. market has lagged in comparison, with the S&P 500 in negative territory year to date. The broad market index has lost 0.3%.

That relationship is at odds with what was in place last decade when a strong U.S. dollar and weaker commodities hindered the growth of markets abroad, while near-zero interest rates in the U.S. bolstered the tech leadership the country is known for. Now, a myriad of reasons has many investors hedging their exposure to the U.S. in favor of other opportunities abroad. There's the weaker dollar amid concerns of a ballooning U.S.

fiscal deficit, rising commodities amid greater geopolitical uncertainty, and fears of AI concentration risk in U.S. markets. To be sure, the U.S. war in Iran has complicated the picture. This week, emerging markets have sold off amid fears that a disruption to oil refiners in Iran or the passage of the commodity through the Strait of Hormuz would hurt those economies most vulnerable to higher energy prices.

South Korea — one of this year's biggest momentum trades — was among the hardest hit given that the manufacturing economy is a top destination for crude passing through the Strait of Hormuz. The iShares MSCI South Korea ETF (EWY) tumbled 11% just this week. On Wednesday, the Kospi index plunged more than 12% in its worst single-day decline on record. Nevertheless, the conflict does little to weigh on the long-term thesis for international stocks, which continues to look bright for investors.

"What's going on with Iran and Israel, if it drags out for for several weeks, it has the potential to have a near term negative impact on international equities," said Stephen Kolano, investment chief at Integrated Partners. "But the longer secular thesis, and trends, I think, remain in place. If anything, probably get accelerated." There are more reasons to be investing abroad apart from a desire to trim exposure to the U.S, as markets abroad become more compelling than they have been in some time: Of course, many investors expect the U.S.

market and economy will continue to be exceptional — even if it has changed somewhat along the margins — given the dollar's dominance in the world and the strength of its tech companies. "I think the U.S. remains until further notice, the market with the most innovative and most dominant companies," said John Belton, portfolio manager of the Gabelli Global Growth Fund (GGGAX) at Gabelli Funds.

"I don't think any of that has changed." However, it does make some stories more compelling especially as a rising U.S. protectionist stance starts to shift behavior abroad, most notably in Europe which is ramping up its defense spending as trust erodes between it and the U.S. Indeed, the conflict in Iran could highlight the need for countries to start building up their own infrastructure and resources, instead of relying so much on trade with other countries.

Earlier this year, for example, Europe signed a trade deal with India that was the largest ever between the two countries and erased 90% of tariffs to boost trade. "I think this activity, while near in the near term potentially disrupts economic growth, … it only then further highlights the need for these investments to be made for countries so that we have less reliance on cross-border capital flows should geopolitical tensions continue," Kolano said.

Other fears remain in place. "Sell America" could gather steam if a run-up in fiscal deficits, and threats to the Federal Reserve's independence, dings the dollar, for example, or if investors become overly complacent.   On the margins, at least, what's clear is that U.S. dominance isn't quite what it was.

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