International Stocks Capture 78% Of Equity Inflows While US Stalls At $771M
International stocks attracted roughly 50 times more capital than U.S. equities in the opening weeks of 2026, according to Bank of America flow data tracking developed market funds.
The shift away from American stocks came as institutional investors redirected capital toward European and Asian markets.
Developed market equity funds recorded $50 billion in net inflows year-to-date through late January. International stocks captured $39 billion of that total, representing 78% of all flows. U.S. equities pulled just $771 million during the same period.
European equity funds absorbed $5 billion while Japanese stocks attracted $2 billion. The concentration of flows outside American markets reversed years of U.S. equity dominance that characterized the post-pandemic bull market.
The Rotation Pattern
U.S. stocks posted their largest weekly outflow since February 2025 during the first week of January, with $18.9 billion in redemptions according to EPFR data.
Technology sector funds experienced their third consecutive weekly outflow as investors questioned AI monetization timelines.
Charles Schwab research identified favorable dynamics driving international equity performance. Europe benefited from interest rate cuts by central banks and increased fiscal spending in countries like Germany.
Developed international equities outperformed U.S. markets through most of 2025.
Currency dynamics played a meaningful role. A weaker dollar outlook for 2026 tends to boost returns for U.S. investors holding international equities. Federal Reserve rate cut expectations and concerns about central bank independence pressured the dollar.
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Valuation Gaps and Earnings Growth
International stocks trade at attractive valuations compared with U.S. equities, particularly relative to the S&P 500’s 22x forward price-to-earnings ratio.
Earnings for companies in developed international markets are forecast to accelerate in 2026 at rates competitive with S&P 500 expectations.
Bank of America warned in January that U.S. mega-cap technology stocks face a “priced for perfection” environment. The firm estimated over $500 billion in potential shareholder returns will be diverted to AI capital expenditures in 2026, removing support for stock prices.
The equity market rotation comes as geopolitical realignment reshapes capital flows and trade patterns. Bloomberg analysis identified defense, energy security, and infrastructure themes as beneficiaries of sustained capital expenditure as supply chains restructure.
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