Been watching the international stock rotation pretty closely lately, and there's something interesting happening that most people might be sleeping on right now.

For years, U.S. stocks basically dominated everything. Since the financial crisis, the S&P 500 just kept crushing international equities. But 2025 flipped the script in a major way. The iShares MSCI EAFE ETF returned 31.6% while the S&P 500 came in at 17.7%. Emerging markets ETF did even better at 34%. That's not a small difference.

Now here's where it gets interesting. The dollar weakening played a huge role, but the real story was the rotation from growth into value. U.S. tech stocks had this insane run, but investors finally started asking whether those valuations made sense. When you look at the numbers, the S&P 500 is trading at around 29x forward earnings. Meanwhile, developed international markets sit at 19x and emerging markets at 18x. That's a massive gap.

Money is starting to flow accordingly. International and emerging market ETFs pulled in nearly twice as much new capital as U.S. equity funds over the past year. That's a meaningful shift in investor positioning.

The case for best international stocks to keep moving higher is actually pretty compelling right now. First, you've got the valuation advantage I mentioned. When foreign equities trade at meaningful discounts to U.S. multiples, that usually matters eventually. Second, earnings growth is expected to accelerate. 2025 saw pretty stagnant earnings across Europe and other developed regions, but 2026 estimates are calling for solid single-digit to low double-digit growth. That's the kind of thing that typically supports higher stock prices.

There's also the sector composition angle. Most international markets aren't nearly as tech-heavy as the U.S. They're more diversified across energy, financials, industrials, and other cyclical sectors. That means different return patterns and potentially better protection if tech ever pulls back further.

Fiscal stimulus in places like Germany and productivity improvements could accelerate growth overseas too. Combined with a weaker dollar environment, international equities have some real tailwinds. The best international stocks are increasingly looking like they could have room to run.

That said, there are legitimate risks worth thinking about. Geopolitical tensions are elevated. Trade wars and tariff uncertainty could derail the growth story pretty quickly. If the dollar reverses and strengthens significantly, that would be a headwind for international returns relative to the U.S. market. International economies also tend to be more cyclically sensitive, so any manufacturing slowdown or trade contraction would probably hit harder overseas than domestically.

But here's the thing that keeps sticking with me. U.S. stocks outperformed for like fifteen years straight. That's an incredibly long run. The valuation gap between the S&P 500 and international markets is at extremes. When you combine that with improving growth expectations and a rotation away from mega-cap tech dominance, it feels like the conditions are finally lining up for an extended period where international equities catch up.

Investors have been conditioned to just buy U.S. tech. That worked great for a long time. But value is coming back into favor, and the best international stocks have the fundamentals to support a sustained move higher. If companies can actually deliver on those 2026 earnings growth estimates, we could easily see another strong year for international investing.

The rotation we saw in 2025 might just be the beginning. For people looking to diversify beyond the U.S. market and find better valuations, this could be a window worth paying attention to. The pendulum has swung one way for so long that it's probably ready to swing back the other direction.