On February 25, 2026, traders were active on the floor of the New York Stock Exchange in New York City, as foreign markets continued to outperform the U.S. this year. The MSCI World ex-US index has seen an 8% increase in 2026, while the S&P 500 has shown little change. Japan's Nikkei 225 has surged by 17% year to date, and the Stoxx Europe 600 has risen by 7%, reflecting a significant shift away from American stocks. Once again, U.S. equities encountered difficulties on Friday amid investor concerns over potential drawbacks of the artificial intelligence expansion and ongoing domestic inflation.
UBS has highlighted the dollar risk as a primary issue, with forecasts predicting the euro to reach $1.22 by the end of the first quarter. Historical trends demonstrate that a 10% drop in the dollar's trade-weighted index typically results in a 4% underperformance in U.S. equities when unhedged. Andrew Garthwaite, UBS's head of global equity strategy, has downgraded American equities to 'benchmark' in a globally invested equity portfolio, noting that the drivers of past outperformance are diminishing.
Furthermore, another traditional strength of U.S. stocks, corporate buybacks, is losing its impact. The current U.S. buyback yield is now roughly equivalent to global peers, diminishing its role as a key support for earnings per share growth and investor attraction. UBS reports that the combined shareholder yield from dividends and buybacks in the U.S. stands at about half that of Europe. "The buybacks yield is no longer exceptional and this had been an important driver of funds flow, EPS, and valuation," Garthwaite commented.
Valuation concerns add to the uncertainty. UBS indicates that the sector-adjusted price-earnings ratio for U.S. stocks is 35% higher than international peers, against an average premium of about 4% since 2010. Roughly 60% of sectors trade not only at higher multiples than their global counterparts but also above their own historical premium, according to Garthwaite.
Policy volatility under President Donald Trump is another challenge, with changes in tariff policy, credit card interest rate caps, potential restrictions on private equity's role in housing, renewed drug pricing scrutiny, and suggestions to limit dividends and buybacks for defense contractors.
Despite these challenges, Garthwaite remains cautiously optimistic. He noted that the U.S. economy and equities tend to outperform during the early phases of potential market bubbles. UBS also expects the pace of artificial intelligence adoption in the U.S. to exceed that in most other major regions, except perhaps China, thereby sustaining growth in key industries.
UBS strategist Sean Simonds has set a year-end target of 7,500 for the S&P 500, in line with the consensus of 7,629 among 14 top strategists surveyed by CNBC Pro.