International Stocks Rise as Wall Street's Focus Narrows

Wall Street's gains are increasingly concentrated in a shrinking pool of stocks, prompting Thornburg Investment Management to argue that a shift toward international equities is becoming a strategic imperative for the second half of 2026.

The Technology Trap in US Equities

The S&P 500's performance this year has been dominated by a handful of technology giants tied to artificial intelligence spending, creating a deep asymmetry in the market.

■Only one-third of S&P 500 members are beating the index this year, marking the lowest share in 35 years.

■Data center construction is now responsible for roughly half of US economic growth.

■Stripping out this spending, the rest of the US economy is expanding by only about 1%, a pace much closer to Europe's growth than the headline rate suggests.

Valuation Gap and Dividend Advantage

Thornburg's mid-year outlook reveals that international markets are trading at a significant discount to the US, offering an attractive entry point for investors.

■International stocks trade at approximately 14 times 2027 earnings, compared to 17 times for US stocks.

■Dividend yields abroad run 2 to 3 percentage points higher than similar US stocks.

■Passive benchmarks lack the ability to filter out weaker companies or tilt toward higher-yielding assets.

The Active Management Strategy

This concentration in capital allocation has led Thornburg to adopt an active stock selection approach rather than passive tracking.

■The Thornburg International Equity ETF (TXUE) and the Thornburg Premium Income Builder ETF (THOR) select individual stocks instead of tracking an index.

■THOR specifically focuses on generating income from higher dividend yields available outside the US.

■This strategy aims to avoid the risk concentration building up around a small group of US tech giants.

As artificial intelligence spending inflates US growth figures, it is crucial to remember that the underlying macroeconomic reality is actually running parallel to Europe. The excessive valuation and sector dependency in US markets make the relative cheapness and stability of Eurozone markets increasingly attractive. As investors realize that "Main Street" growth in the US has dipped to 1%, the dividend yields and rational valuations offered by Europe emerge as a compelling haven for capital.