A shrinking pool of stocks is powering most of Wall Street’s gains, making international equities worth a fresh look, according to Thornburg Investment Management. That shift is unfolding in the second half of 2026.
Key Takeaways:
- Just a third of S&P 500 stocks are beating the index this year, the fewest in 35 years.
- International stocks trade near 14 times 2027 earnings versus 17 times for the U.S.
- Dividend yields abroad run 2 to 3 percentage points higher than similar U.S. stocks.
Only one third of the S&P 500’s members are beating the index this year. That’s the smallest share in more than 35 years, according to Matt Burdett, head of equities at Thornburg Investment Management.
A handful of stocks tied to artificial intelligence spending have driven most of the index’s gains this year. Burdett detailed the trend in Thornburg’s mid-year outlook published July 22.
That imbalance is why Thornburg Investment Management argues this is a case for active management. Passive international benchmarks were also pulled narrower over the past year by a semiconductor-driven rally.
Those benchmarks cannot selectively filter out weaker companies or tilt toward higher-yielding ones, the report notes.
Two Thornburg funds take that active approach instead. The Thornburg International Equity ETF (TXUE) and the Thornburg Premium Income Builder ETF (THOR) pick individual stocks rather than track an index. THOR also focuses on generating income from higher dividend yields available outside the U.S.
Burdett’s report points to cheaper valuations abroad. It highlights less exposure to risks building up around a small group of U.S. technology giants.
AI Spending Drives Most of US Growth
Data center construction tied to artificial intelligence is now responsible for roughly half of U.S. economic growth, Burdett wrote. Strip that spending out, and the rest of the economy, sometimes called Main Street, is expanding by about 1%. That pace is closer to Europe’s growth than the roughly 2% headline rate would suggest.
Large technology companies known as hyperscalers include Microsoft Corp. (MSFT), Amazon.com, Inc. (AMZN) and Alphabet Inc. (GOOGL). Those companies are projected to spend nearly all their cash on data centers and equipment in 2026, according to the report.
That pace of spending has also made the group the largest issuer of corporate bonds this year. It raises questions about how quickly the investments will pay off.
International Stocks Trade at a Discount
Stocks outside the U.S. are cheaper than their American counterparts, Burdett wrote. Earnings growth looks similar once technology names are excluded.
An equal-weighted index gives smaller companies the same weight as larger ones. On that basis, those stocks trade at about 14 times projected 2027 earnings, versus 17 times for U.S. stocks.
Global trade has also held up better than expected despite more than a year of shifting U.S. tariff policy, according to Thornburg. Gross exports climbed year over year in major economies including Vietnam, South Korea, Germany and the United Kingdom between April 2025 and March 2026. That held even as some supply chains shifted away from the U.S.
International stocks also pay more in dividends, Burdett wrote. Yields typically run 2 to 3 percentage points higher than similar U.S. companies. THOR is built to capture that yield gap rather than concentrating on the most richly valued U.S. names.
See more: New U.S. Tariffs Create Case for International Dividend ETFs
The U.S. market’s own rally looks different up close. The S&P 500’s second-quarter advance ranked as the fourth-largest quarterly rally in market history, Burdett noted, but unlike the three larger rallies, which followed the Global Financial Crisis and the COVID-19 pandemic, this one began from an already elevated starting point rather than a market bottom.
For more news, information, and strategy, visit our Portfolio Strategies Content Hub.
