The biggest rotation in 16 years is happening and most retail investors are sleeping through it.
U.S.-domiciled investors have yanked $75 billion from American equity products in the last six months — with $52 billion of that flowing out since January alone. That’s the fastest exit in the first eight weeks of any year since at least 2010, according to LSEG/Lipper data.
Where’s the money going? Emerging markets sucked up $26 billion so far this year, with South Korea ($2.8 billion), Brazil ($1.2 billion), and Europe leading the charge. Bank of America’s February fund manager survey showed the biggest single-month shift from U.S. to emerging-market equities in five years.
The math makes the case. Over the past 12 months, the S&P 500 is up about 14%. Respectable. But Tokyo’s Nikkei returned 43% in dollar terms. Europe’s STOXX 600 surged 26%. Shanghai’s CSI 300 returned 23%. And Seoul’s KOSPI doubled. If you’ve been 100% in U.S. stocks, you’ve been leaving serious money on the table.
Three forces are driving this rotation. First, Big Tech’s AI-fueled rally is cooling — Microsoft is down nearly 18% year-to-date, and investors are starting to question whether sky-high AI spending projections justify current valuations. Second, the U.S. still trades at roughly 21.8x forward earnings versus 15x in Europe, 17x in Japan, and 13.5x in China. Third, the dollar’s 10% decline since last January is plumping up foreign dividends when converted back to greenbacks.
UBS’s head of European equity strategy put it bluntly: American wealth clients are “looking at foreign market performance in dollars and saying, wow, I’m missing out.” Nuveen’s global investment strategist Laura Cooper confirmed the rotation is playing out both at the sector level — away from tech and growth, into value and cyclicals — and at the global level.
European banking stocks, one of the biggest beneficiaries of this rotation, surged 67% last year and are up another 4% in 2026. Japanese industrials and Chinese value plays are trading at half the valuation of their U.S. peers.
This doesn’t mean the American market is dead. It means the easy “just buy the S&P” trade isn’t the only game anymore. The smartest money on Wall Street is diversifying into markets that offer better growth at cheaper prices. For the first time since the post-financial-crisis era, “buy America” isn’t the default setting — and investors who ignore that shift may be the ones missing the next decade’s biggest gains.