Why US Stocks Will Outperform International in 2026, Says Fidelity’s Chisholm
History may not repeat, but patterns are persistent. The skill of pattern recognition—across vast macroeconomic data sets, plus stock, sector, and industry data—is why Fidelity’s diversified portfolio managers rely heavily on Denise Chisholm. The director of quantitative market strategy interprets thousands of data points for the firm, puts them into historical context, and helps colleagues find tempting opportunities, as well as areas to give a wide berth. Her views about stock market behavior during new tariff and tax regimes were widely sought as “Liberation Day” tariffs roiled the markets in 2025.
Last year, international stocks outperformed the US stock market by nearly 15 percentage points. The US market’s underperformance was unusual. Since 2009, US stocks have outperformed the rest of the global stock markets in 12 out of 16 years, as measured by the Morningstar US Markets Index versus the Morningstar Global Markets ex-US Index.
But going into 2026, Chisholm is bullish about US stocks, seeing a trio of positive factors in tax cuts, falling rates, and falling oil prices. This conversation has been edited and condensed for time and clarity.
Why High Stock Prices Aren’t A Cause for Concern
Norton: People point to elevated stock prices as a cause for worry.
Chisholm: If I want to use prices as a discounting mechanism, I should then see a historical relationship: If stocks are up a lot, then they may be more likely to be down a lot in the future. I see the opposite pattern. If stocks go up, the more likely they are to go up in the future. People also think stocks are expensive, so it’s discounted. But going back to the 1960s, the odds of a market advance the next year for the S&P 500 is 75%, regardless of the quartile of valuation. Valuation is not a strong indicator for next year’s returns.
Where I do get that monotonic linear pattern is this: The more fear there is in the equity market relative to the credit market, the more likely stocks are to go up in your face, regardless of the bad news.
Norton: Global stocks have been on a tear. But you’re expecting US leadership for 2026.
Chisholm: The case for US stocks is that as we enter this year, median earnings growth is only just now starting to recover. In 2022, along with an earnings recession, we had a full employment recession. Now we are seeing a full employment recovery. And you can see that pattern in earnings. Cap-weighted earnings started to recover from 2022, and we’ve had relatively strong earnings growth for the past couple of years. That has not been true on a median level. This cycle is different, in that it’s the longest time that cap-weighted earnings grew above 5% while median earnings were contracting. There was a big difference between the top of the market and any average company.
Three Tailwinds for Earnings Growth
Norton: Tell us more about how earnings look today.
Chisholm: Going into 2026, this is the first time in the better part of three years that median earnings growth is finally positive. This is the game changer. The longer the contraction in earnings, the longer the recovery, historically. Our current median earnings contraction was as long as prior recessions, despite the fact that we were never actually in one. That points to the recovery being more durable.
The durability of the cycle interests me most, because that’s what justifies the valuation that everybody is angsty about. Really strong numbers scare me. Really mediocre numbers where we slog it out extend the cycle. They mean mid-cycle earnings are further off than you think, and when you look back at mid-cycle, stocks were going to be less expensive than you thought. That’s how you get to valuation not being the problem.
Norton: What’s driving better earnings growth more broadly in the market?
Chisholm: Three tailwinds. One, we basically saw a drop in the effective tax rate to close to 7%, which is more beneficial for big businesses, but also very beneficial for small businesses. In tax history, you see a boost in terms of CEO confidence that year the tax cut is passed, which we saw. In years two and three, you see sustainable and durable earnings growth.
Two, the Federal Reserve is lowering interest rates. That’s more specific for small businesses than large companies who borrow at the long end, but it’s also important to better earnings growth for the median company in the future.
Three, which is overlooked, is the double-digit decline in oil prices, which is likely to persist. That translates into lower inflation and less impetus for the Federal Reserve to raise rates, but directly affects the cost structure of small and large businesses.
Norton: The Trump administration generates a lot of noise and drama. How do you account for this in your predictive work?
Chisholm: I am always skeptical about any headlines from any administration. There’s a lot of what I call “probability bleed” between what administrations want and what they can achieve.
Look at two examples from history. One was healthcare reform in the 1990s, which was supposed to be the end of healthcare as we knew it. After that legislation passed, healthcare stocks outperformed over eight years. Healthcare reform didn’t affect profitability the way people thought it would, and markets discounted the worst-case scenario. In 2021, the administration created legislation that would have a positive risk-reward for green energy. But the legislation didn’t do exactly what people thought from a profitability perspective, and the stocks discounted something that was better than it ended up being.
Norton: How about tariffs?
Chisholm: There have only been four instances, each dramatically different, but inflation decelerated each time. That was almost your first historical flag. People worry about inflation and say, “It’s dramatically different this time, Denise. We’re going from 0% to what is now looking like 11% tariffs.”
Maybe we’ve never dealt with tariffs like this, but we’ve dealt with taxes like this before, if we consider that tariffs are a tax. Let’s look at the history with taxes. We’ve seen a 1% tax hike at least three times. None were recessionary, and none was a problem for the stock market. Another expectation is that global trade would decline. But when you look at the global trade data, which we have going back to the 1980s, stock prices were more likely to go up than not. The patterns are very telling, and can help keep us from making a bad decision.
Norton: What keeps you up at night?
Chisholm: So-called good news makes me nervous about forward market returns—things like very strong earnings growth, very low credit spreads, top-quartile leading indicators, and maybe most importantly, the equity market having less “fear” than the credit market. None of those apply right now.
Ironically, after three years of solid returns, there is still more fear in the equity market, in valuation spreads, than in the credit market, in high-yield credit spreads. Statistically, that situation means the market has a better shot at climbing a wall of worry, regardless of bad news.
Why US Stocks Should Outperform International This Year
Norton: Why do you think US stocks will outperform international ones in 2026?
Chisholm: So 2025 was the first year in five that international outperformed. That was an anomalous situation. Earnings growth will underpin the US outperformance.
International looks like a value trap. If you own international stocks because they are cheap, pick any time where international equities had a bottom-quartile valuation relative to the U.S. You can look at [MSCI Europe Australasia Far East index], emerging markets, or [MSCI All-Country World Index ex-US]. When stocks outside the United States have been cheaper—meaning they were in the bottom quartile of valuation versus the US—they had lower odds of outperformance than if their starting point was more expensive, meaning they were in the top-quartile valuation versus the US. Buying them cheap doesn’t usually work out.
Some say that the US only grows faster because technology stocks are a bigger part of the index. But even if you exclude technology and go sector by sector, the median company in the US grows earnings faster than their international counterparts. And the gap has gotten wider every cycle. Even sector-neutral US stocks outearned their European and emerging-market counterparts. In fact, the median earnings for the S&P 500, or for the Russell 3000, are inflecting higher. You’re not seeing the same in Europe, EAFE, or emerging markets.
Norton: Where are you finding promise today?
Chisholm: Nobody ever talks about financials, which have a very deeply negative correlation with technology stocks. The trick with negative correlations is that if technology outperforms, financials underperform, and vice-versa. But that doesn’t mean they end the year outperforming and underperforming. In fact, in three of the last five years, they outperformed together. When technology sells off, financials tend to pick it up. So you can get this negative correlation, but I don’t think you necessarily have to give up any performance.
The most interesting thing about financials is how persistent the threshold of valuation has been. People ask: “Are you betting on deregulation?” Hey, deregulation would be nice, but no. I’m not betting on a steeper yield curve, the Fed lowering interest rates, or lower inflation.
It’s tough to be a bank or a financial company. We’ll see, with the headlines out of the administration, what the valuation support is. But that valuation support has been incredibly robust in every five-year increment since the financial crisis.
It’s back to the patterns I’m looking for. When you’re in the bottom decile, does it raise your odds of outperformance? Yes. It doesn’t get you to 100%, but your odds are above 70%. So that’s what I tell our portfolio managers, that they start to look really interesting when they start to get down to bottom decile levels. Brokers and capital markets look the most interesting. They have the lowest valuation support and the best fundamentals. They’re more geared to the secular bull market thesis than banks are.
Norton: Any other themes?
Chisholm: Technology is not at all in a bubble. The valuations we’re seeing look like those for durable leadership, with strong trends in terms of earnings growth. During the 1999 tech bubble, fundamentals for media and tech companies peaked in 1996. For the entirety of the decade before, capital expenditure outspent their free cash flow. Now, for the last 15 years, free cash flow has been growing in massive excess of capex. You get concerning charts when you focus on six or seven companies over six or seven years. But relative to history and free cash flow, it doesn’t look that bad. Now, you’re seeing the median inflection in tech as well. Cap-weighted earnings have shifted back into the top quartile of earnings growth. And yes, they are now in the top quartile of valuation.
The interesting part is that growing fast and expensive is a better setup, historically, than growing fast and cheaper. It’s almost as if valuation is reflecting the fact that earnings growth is visible. Here I like semiconductors, where earnings growth supports the valuation.
Norton: What sectors would you avoid?
Chisholm: I’m going to pick on energy. For energy, excess capacity is actually much more important, statistically, than the supply and demand dynamic. That said, there’s still a lot of excess supply out there, given all the OPEC cuts and shales still producing.
My biggest problem with energy is that it’s still earning above-average operating margins and returns. And that’s dangerous, because when they are over-earning relative to history, there is more downside than you expect. And this is one of the only sectors where you get trough multiples on trough earnings. So if you’re early, you get pain both ways. Just from a pure profitability perspective, energy is still in a negative risk-reward scenario as we go into 2026.
