The era of “US Exceptionalism” is facing its sternest test in years as global investors execute a massive strategic pivot.
According to a striking new “Flow Show” report from Bank of America’s Michael Hartnett, US stocks have fallen to their lowest share of global equity flows since 2020.
So far this year, American equities have captured a mere $26 of every $100 flowing into global stock funds — a staggering collapse from the $92 peak seen in 2022.
As the S&P 500 grapples with an extreme valuation premium and a cooling tech narrative, the world’s capital is migrating toward cheaper, growth-oriented markets in Europe, Japan, and Emerging Markets.
This shift isn’t just a momentary dip; it’s a fundamental rebalancing of the global investment landscape. Here is why the “Sell America” sentiment is gaining such powerful momentum in 2026.
Valuation extremes and tech fatigue
For much of the last decade, the US market was the only game in town, driven by the meteoric rise of the “Magnificent Seven” and AI-centric growth.
However, Charles Schwab’s 2026 Outlook notes that US large-cap valuations have reached levels that are historically difficult to sustain, especially as earnings growth for the tech sector is projected to decelerate from 27% in 2025 to roughly 25% this year.
Investors are increasingly wary of “concentration risk,” where a handful of expensive stocks dictate the entire market’s direction.
LSEG’s February 2026 insights corroborate this, showing that while the US market’s returns have been primarily driven by multiple expansion (paying more for the same earnings), international markets like Japan and Developed Asia are seeing their gains backed by tangible, robust earnings growth.
This fundamental divergence makes the “expensive” US tech narrative a difficult sell compared to the “profitable” value found elsewhere.
The ABD (Anything but the Dollar) trade
Currency dynamics have become a major headwind for US-based assets.
After years of dominance, the US dollar is under significant pressure due to rising concerns over fiscal deficits and the erosion of Fed independence.
Charles Schwab highlights that a weaker dollar acts as a natural tailwind for international returns; when the dollar falls, the value of foreign-denominated assets rises for US-based investors.
In 2025, the dollar saw a near 10% annual decline, its steepest drop since 2017, and that trend has intensified in early 2026.
This “ABD” trade is pushing capital toward regions like the Eurozone and Canada, where central banks have been more aggressive in easing, potentially setting the stage for a cyclical recovery that the US – hampered by “sticky” inflation components like shelter and insurance – may not be able to match.
A cyclical renaissance in Europe and Japan
While the US economy is described by analysts as “lukewarm,” international regions are entering a period of synchronised acceleration.
Charles Schwab’s research points to a “moment to shine” for Europe, specifically Germany, which is currently rolling out its largest fiscal spending package in three decades.
At the same time, the lagged effects of aggressive interest rate cuts by the European Central Bank (totalling 235 basis points) are finally filtering through to the real economy.
In Asia, Japan has become a darling for institutional investors.
LSEG reports that Japan’s inflation is finally being driven by wages rather than imports, creating a healthy economic cycle that has allowed the Bank of Japan to move away from yield curve control.
This “shareholder value unlock” in Japan, combined with Europe’s fiscal stimulus, offers a growth story that feels fresh and unburdened compared to the ageing US bull market.
The emerging market growth differential
The most profound shift may be the widening growth gap between Emerging Markets (EM) and Developed Markets.
Historically, EMs outperform when their growth exceeds that of the US by a wide margin – and 2026 is delivering exactly that.
Eastspring and LSEG insights suggest that the EM middle class is set to double over the next decade, with countries like Vietnam, Indonesia, and Mexico emerging as high-growth hotspots.
While US GDP growth is forecast to hover around a modest 1.9%, Emerging Markets are benefiting from proactive fiscal support and a “re-rating” of their undervalued stock markets.
Currently, EM stocks are trading at a significant discount to US equities, even when adjusted for earnings.
This valuation “gap” is acting as a vacuum, sucking capital out of the US and into regions where the demographic and economic “gravity” is clearly shifting toward a new decade of leadership.
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