Remember that feeling of American market dominance? The one where U.S. stocks just kept winning, year after year, leaving the rest of the world in the dust? Well, according to Bank of America, that era is quietly fading. And what comes next could be a whole new ball game for investors.
In his latest "Flow Show" report, Bank of America's Chief Investment Strategist Michael Hartnett makes a sweeping call: international stocks are set to outperform the U.S. in the second half of the 2020s. It's a prediction that, if correct, would fundamentally reshape what leads the next bull market.
For most of the post-Global Financial Crisis era, U.S. exceptionalism wasn't just a talking point—it was a market reality. Between 2009 and late 2024, the S&P 500 — as tracked by the SPDR S&P 500 ETF Trust (SPY) — outperformed the iShares MSCI ACWI ex U.S. ETF (ACWX) by over 280%. The dollar stayed strong. Mega-cap tech dominated. It was a great run if you were betting on America.
But now the tide appears to be turning.
The End Of U.S. Exceptionalism?
Let's look at the numbers. They tell a story of a shrinking American share of the global pie. Back in February 1994, international stocks made up 67% of global market capitalization. By March 2003, that share had fallen to 44%. It managed a couple of rebounds—to 59% in May 2008 and again in October 2010—but then came the real slide. By December 2024, the U.S. share had collapsed to just 33% of the global total.
It has since rebounded a bit to 38% of the $97 trillion global equity market, but Hartnett believes this is just the beginning of a larger move. He says this share is set "to rise further on fiscal excess, populism, end of deflation."
Here's where it gets really interesting: Hartnett suggests that the very force many see as a U.S. strength—artificial intelligence—may actually prove more disruptive here than overseas. Think about it. The U.S. economy is heavily services-based. The S&P 500 index is dominated by technology and platform companies. AI threatens white-collar labor markets and the corporate revenue models concentrated in software and digital services.
By contrast, emerging markets indices lean more toward manufacturing, industrials and natural resources. If AI ends up compressing service-sector margins, U.S. earnings could feel the pressure first. That would flip the script of the entire past decade.
The Streaks That Matter
You don't have to take the strategist's word for it—the price action is already telling a story. The iShares MSCI ACWI ex U.S. ETF (ACWX) has climbed for 10 straight weeks. That's a streak that has never happened in the fund's history.
Meanwhile, the iShares MSCI Emerging Markets ETF (EEM) has rallied for nine consecutive weeks, marking its longest winning streak since 2005. And perhaps most tellingly, the iShares MSCI Emerging Markets ex China ETF (EMXC) has outperformed the SPDR S&P 500 ETF Trust (SPY) for 10 straight weeks.
Momentum, it seems, is no longer confined to U.S. mega caps. It's spreading decisively overseas.
A New World Bull?
Hartnett frames this not as a short-term tactical trade, but as a structural shift. The combination of fiscal expansion, geopolitical fragmentation and inflationary pressures, he argues, favors real assets and manufacturing-heavy economies. In this new context, market leadership may rotate toward the very regions that lagged during the U.S. tech boom.
For most of the past 15 years, overweighting international equities meant accepting underperformance compared with simply investing in U.S. stocks. It was a frustrating trade for anyone trying to diversify. But if Hartnett is right, the second half of the 2020s could look very different. The crown may no longer belong exclusively to Wall Street.
It's a bold prediction, but one backed by both historical data and recent market behavior. For investors who've grown accustomed to U.S. leadership, it might be time to start looking at the rest of the world with fresh eyes.
