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International equities extend lead over U.S., driven by mega-cap tech
According to Thornburg’s Josh Rubin, the U.S. mega-cap technology complex has widened the gap between the U.S. share of global corporate earnings and its share of global stock market value.
International equities have regained the upper hand versus U.S. stocks after a post-2008 stretch in which U.S. performance led most years, with international stocks outperforming for four straight years, according to ETF Trends. Thornburg Investment Management’s Josh Rubin, speaking during an Aug. 20 webcast hosted by VettaFi titled “The Rise of International Equities,” said the shift is less likely to be a fluke and more consistent with how markets typically behave, framing it as a return to longer-term patterns. Rubin pointed to the U.S. economy’s relative exposure to AI spending as a key factor, noting that in a live poll during the event, 64% of attendees said the U.S. economy is too dependent on AI spending. He linked the longer-run divergence to the U.S. market’s concentration in mega-cap technology, saying the Magnificent Seven are now worth more than $20 trillion and that removing them leaves the remaining U.S. market about the same size as international stock markets combined. He also cited interest-rate dynamics, arguing that zero and negative rates weighed on international markets more than the U.S. for over a decade, with the European Central Bank holding rates near zero through 2022. Rubin said international stock indexes have about 25% exposure to financials, versus roughly 30% exposure to technology in the U.S. index, and he added valuation differences, with U.S. financials trading around 15 to 16 times earnings compared with about 11 to 12 times for European financials.