Investors are being advised to consider international markets as a means of diversifying their portfolios, particularly in light of the overwhelming influence of a few major technology companies on U.S. stock performance. As of the end of the third quarter of 2025, the eight largest American companies, all within technology or tech-adjacent sectors, accounted for a staggering 36.1% of the MSCI USA Index value. This concentration marks a level even higher than during the peak of the dot-com boom, raising concerns about potential vulnerabilities in the market.
The significant reliance on what is referred to as the “Magnificent 7” — which includes Apple, Alphabet, Microsoft, Amazon.com, Meta Platforms, Tesla, and Nvidia — underscores the precarious position of the S&P 500 index. Together, these companies represent roughly one-third of its market capitalization, indicating that any downturn in their performance could lead to substantial market losses.
International Markets Offer Greater Diversity and Opportunity
In contrast, international markets, as represented by the MSCI EAFE Index, provide a more balanced sector representation. The top eight holdings within this index make up just over 10% of its total weight, with the financial sector being the largest at approximately 25%. This diversified structure helps mitigate the risk associated with depending heavily on a single sector or a limited number of companies.
Data from MSCI highlights that all 11 U.S. sectors currently trade at higher price-to-earnings multiples than their international counterparts. Additionally, international equities are yielding more attractive dividend rates, with 2.9% for EAFE compared to just 1.2% for U.S. stocks. These factors create a compelling case for investors to look beyond U.S. markets, especially as global peers continue to grow and innovate, particularly in areas such as artificial intelligence.
Currency trends also play a role in this strategy. The first half of 2025 saw the U.S. dollar experience its weakest performance since 1973, influenced by uncertainties surrounding U.S. policy and rising national debt. As growth expectations between the U.S. and other developed economies converge, a weaker dollar could enhance returns for U.S.-based investors holding non-dollar assets.
Rebalancing Portfolios to Mitigate Risk
Investors who have not actively rebalanced their portfolios over the past 15 years may find themselves disproportionately invested in these major tech firms. The crucial question now is whether it is wise to continue placing such heavy bets on these companies, particularly as their valuations have surged and concentration risks have reached unprecedented levels.
Reallocating even a portion of exposure from U.S. equities to developed international markets can help reduce dependence on a narrow group of mega-cap companies, while also capitalizing on attractive valuations abroad and potentially benefiting from favorable currency movements.
History suggests that market leadership driven by a single theme is not sustainable. The current extreme reliance on the Magnificent 7 reflects both exceptional business performance and inherent systemic risks. Looking abroad is not merely about diversifying for its own sake; it is about expanding the potential sources of returns at a time when U.S. market strength relies on an unusually narrow base.
By taking proactive steps now, investors can tap into a broader range of opportunities, lessen overconcentration risks, and better position their portfolios for the future of global market leadership.
