Why International Investors Could Outperform U.S.-Only Investors in 2026

For more than a decade, U.S. investors have seemed unstoppable. The tech-heavy S&P 500 has dramatically outpaced most global indices, minting fortunes for anyone disciplined enough to stay invested. But as 2026 unfolds, international investors may find themselves in a unique position to catch (or even outperform) their U.S.-focused counterparts.

For those looking to create a robust portfolio that can withstand potential headwinds on the horizon, but also see impressive upside in a bull market environment, I think Canadian stocks are a great place to look. Here’s why.

Valuations matter

The setup is as much about math as it is psychology. After years of market dominance, U.S. stocks are now priced for perfection. The “Magnificent Seven” continue to trade at lofty multiples, and even quality mid-caps look expensive relative to global peers. Meanwhile, in international markets (particularly in Canada, Europe and parts of Asia), investors have plenty of opportunities with attractive valuations that haven’t been this compelling in years.

This valuation gap could prove powerful. The MSCI EAFE Index, which tracks developed markets outside North America, trades at roughly 14 times forward earnings. The S&P 500? Closer to 21. When investors pay 50% more for the same dollar of earnings, future returns often disappoint. History has shown that valuation mean reversion tends to favour cheaper markets, especially when combined with improving economic momentum.

Inflation readings matter, as do interest rates

There’s evidence that such momentum is building. Europe’s inflation has cooled faster than in the U.S., giving the European Central Bank room to cut rates sooner. Meanwhile, Japan’s corporate reforms and wage growth trends have reignited investor interest after decades of stagnation. Emerging markets, from India to Brazil, are also benefiting from stronger domestic demand and improving governance.

Currency dynamics could add another tailwind. The U.S. dollar appears to be coming off its highs after years of strength. A softer dollar typically boosts returns for non-U.S. assets when translated back to greenbacks. For globally diversified investors, that’s a quiet advantage that can compound meaningfully over time.

Of course, there are risks

Now, diversification isn’t a guarantee. Geopolitical risks, uneven growth, and currency volatility all remain part of the international investing playbook. But viewed through a long-term lens, spreading capital beyond U.S. borders looks more like smart positioning than blind optimism.

It’s worth remembering that global leadership rotates. The U.S. took the torch from emerging markets in the 2010s, just as emerging markets outpaced the U.S. in the 2000s. Investors who recognize the rhythm of these cycles (and act on them early) tend to capture the best opportunities.

In 2026, that rhythm may once again be changing. For investors willing to broaden their horizons, patient international exposure could turn into one of the year’s more rewarding calls.

The post Why International Investors Could Outperform U.S.-Only Investors in 2026 appeared first on The Motley Fool Canada.

Should you invest $1,000 in Shopify right now?

Before you buy stock in Shopify, consider this:

The Motley Fool Canada team has identified what they believe are the top 10 TSX stocks for 2026… and Shopify wasn’t one of them. The 10 stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 … if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,155.76!*

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* Returns as of February 17th, 2026

More reading

• Where Could Telus Stock Be in 3 Years?
• 5 Canadian Stocks to Buy and Hold for the Next 5 Years
• 1 Incredibly Cheap Canadian Dividend-Growth Stock to Buy Now and Hold for Decades
• TSX Today: What to Watch for in Stocks on Thursday, February 26
• Buy, Buy, Buy: 3 Stocks You Should Dollar-Cost-Average Into in 2026

Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.