JPMorgan: Why the International Stock Rally Still Has Legs

Overview

JPMorgan identifies a durable opportunity in international equities driven by a combination of solid growth, well-behaved inflation and a weakening U.S. dollar. The bank highlights a clear performance divergence: international stocks outpaced U.S. peers by 12% in 2025 and are already 8% ahead year-to-date in 2026. This performance gap underpins a recommendation to increase exposure to international and emerging-market equities, with particular emphasis on value, small-cap and mid-cap segments.

Performance snapshot

• International equities vs. U.S. (SPX): +12% in 2025; +8% YTD in 2026
• Target exposures called out: broad international ETF ACWX and emerging markets ETF EEM

These headline differentials are presented as concrete evidence that the equity market leadership is broadening beyond the U.S. large-cap benchmark (SPX).

Why the setup is constructive

1. Goldilocks macro backdrop: Solid growth combined with contained inflation creates a ‘Goldilocks’ environment—sufficient demand to support corporate earnings growth without forcing aggressive monetary tightening.

2. Weaker dollar effect: A softer dollar improves foreign-currency returns for U.S.-based investors and supports profit margins for multinational companies reporting in stronger local currencies.

3. Breadth expansion: With the dollar easing and growth staying intact, equity performance is expected to broaden from large-cap U.S. leaders to small and mid-cap stocks abroad, increasing the opportunity set for active and passive investors.

These drivers are framed as mutually reinforcing: contained inflation reduces the risk of policy shocks, the weaker dollar magnifies local-currency returns, and broader participation enhances the sustainability of the international rally.

ETF and index context

• ACWX: Broad international equity exposure that excludes U.S. equities and can capture both developed and emerging market strength outside the U.S.
• EEM: A liquid proxy for emerging-market equities, sensitive to commodity cycles and global growth dynamics.
• SPX: The S&P 500 index, the primary U.S. large-cap benchmark used for relative performance comparisons.

Using ACWX and EEM as implementation tools can give investors targeted coverage of the areas JPMorgan highlights as favorable in the current macro regime.

Tactical implications for investors

• Increase allocation to international value stocks: Value-oriented sectors in developed and emerging markets may benefit more from a growth-with-stability scenario.
• Consider small- and mid-cap exposure offshore: If breadth is indeed broadening, small- and mid-cap equities outside the U.S. could offer incremental alpha versus crowded large-cap U.S. positions.
• Use currency-aware positioning: A weakening dollar amplifies returns for U.S.-dollar investors; consider hedging decisions and product wrappers that match currency objectives.
• Revisit emerging-market allocations via EEM or similar vehicles: Emerging markets remain a distinct growth exposure and can outperform when global liquidity and commodity demand are constructive.

Risk considerations

• Reversal risk: A sudden pickup in U.S. inflation or a policy pivot could reverse the dollar trend and compress international equity outperformance.
• Country and idiosyncratic risk: Emerging and certain developed markets carry distinct political, regulatory and corporate governance risks that can widen drawdowns.
• Valuation dispersion: While headline performance favors international equities, valuation spreads matter—selectivity across regions, sectors and market-cap bands remains critical.

Actionable checklist for institutional investors and traders

• Reassess portfolio beta to international equities and consider staged reallocation to ACWX/EEM exposures
• Blend passive ETF exposure with active managers focused on small/mid-cap and value opportunities outside the U.S.
• Implement currency overlays only after clarifying the intended exposure to local-currency returns
• Monitor inflation signals and central bank communications closely—policy shifts are the primary macro risk

Bottom line

JPMorgan frames the current market environment as favorable for international and emerging-market equities: international stocks led U.S. peers by 12% in 2025 and are 8% ahead so far in 2026. With growth intact, inflation contained and the dollar weakening, the bank expects equity leadership to broaden beyond U.S. large caps into small- and mid-cap and value-oriented international segments. For professional traders and institutional investors, the recommendation is to evaluate increased exposure to international ETFs such as ACWX and EEM while managing currency and country-specific risks.