Barclays analysts report a clear shift in early 2026, with global investors actively seeking diversification away from U.S. equities and mega-cap technology stocks. The U.S. market has lagged behind regional peers, while Japan, China, and Europe are strongly outperforming.

This rotation reflects growing concerns about AI dominance and U.S. policy risks, compounded by significant geopolitical events. The analysts note that while broad markets have shrugged off the noise, a rotation out of big tech is weighing on the Magnificent 7 group that has powered recent gains.

The upcoming quarterly earnings season will be a key test for this trend. Barclays suggests that if earnings growth from international companies closes the gap with their U.S. counterparts, diversification at a cheaper cost could continue favoring international equities, even with their more modest valuations.