Despite uncertainty around tariffs, same tax policy-new name, and Home Depot workers getting snatched out of parking lots, the stock market has miraculously clutched its purse and kept marching up and to the right this year.
One could argue that AI has single-handedly saved the market.
Beyond valuations, it was the promise of what AI will do for the American workforce that drove these numbers higher.
As Ben Carlson put it, “Would we have seen an economic contraction if our tech overlords didn’t go on an insane AI spending spree from there?,” following the mental reset markets took from February to early April.
As of September 2025, in addition to Warren Buffett’s Berkshire Hathaway, there are eight tech companies within the S&P 500 that have a market capitalization exceeding $1 trillion. Chart Kid Matt helped bring this to life, showing that the total market cap of the Mag 7 is now 35% of the total market cap of the S&P.
Valuations are high. Breadth is narrow.
According to Howard Silverblatt, through the first half of the year, the information technology sector, led by a handful of big names, accounted for almost 54 percent of the S&P 500’s 8.6 percent total return. Almost 70 percent of the total return of the entire index.
The question, and some investors hang up, is whether we are at or nearing the top?
The question as old as time. Who knows? That kind of data is only known after the fact.
But the cracks are showing.
This tweet / X’d (guys what are we calling these things?)… this X-a-sketch by Augur Infinity highlights how the U.S. has had one of its worst relative runs against the rest of the world since 2009.
US equities have underperformed the rest of the world by over 10 percentage points year-to-date. This is the worst underperformance since 2009. pic.twitter.com/rN2zW3PjWc
— Augur Infinity (@AugurInfinity) August 13, 2025
Commentators have flagged frothiness in U.S. equities, asking what happens if these mega-caps fail to deliver on their promises, and have started making bold calls about whether the “U.S. exceptionalism” trade is running on fumes.
All fair. If you think we’re near a peak, here’s the answer: diversification.
Diversification of sectors.
Diversification of tax lots.
Diversification of geographies.
Probably not the answer you were looking for, but diversification works. It doesn’t always feel rewarding, but over time, it plays its role.
More Evidence for My Case
For more than a decade, U.S. stocks—powered by a handful of tech giants that we know and love—have overshadowed the rest of the world. More recently, the Mag7 has dominated headlines and portfolios alike, carrying the S&P 500 to new highs.
Michael Cembalest from JP Morgan writes, “AI related stocks have accounted for 75% of S&P 500 returns, 80% of earnings growth, and 90% of capital spending growth since ChatGPT launched in November 2022.”
He highlights the soaring debt-to-equity ratio of these large tech companies, particularly Oracle, suggesting that the time it takes a firm to convert its investments in assets (AI infrastructure) into sales could be ripe for change.
For most of my career, the US large-cap sector has seemed like the only rational place to park your money.
And for years, global allocations, investments outside the US, looked like dead weight in portfolios.
Now, the story has flipped.
International equities haven’t just caught up with U.S. stocks this year—they’re outpacing them by a wide margin.
Take South Korea (EWY), for example. Year-to-date, the country’s index is up 54%! Far exceeding the S&P’s lackluster 12.7%.
The lesson here is that you can make money in other stocks even if they’re not the bold print headlines of today’s stories.
Those of us who stuck with a diversified approach haven’t exactly always felt rewarded. But moments like this remind us why we diversify in the first place.
Because no one market regime wins forever. That goes for businesses, factor strategies, sectors, and geographical regions.
Recency Bias:
Markets move in cycles, not straight lines. No one knows how long international leadership will last.
But diversification remains the closest thing we have to a free lunch.
Diversification isn’t about predicting winners, it’s about owning exposure to multiple potential winners.
Holding international stocks doesn’t just give you exposure to new growth—it can actually reduce overall portfolio volatility. By blending U.S. equities with non-U.S. markets, you’re smoothing out the ups and downs that come with having all your bets in one place, which ultimately helps you stick with your portfolio for longer. 
Vanguard, Portfolio Perspectives: International equities: Will the performance continue?
Vanguard research backs this up, showing that a 30–40% allocation to international equities optimally reduced volatility within U.S.-heavy portfolios.
And don’t stress too much over finding the perfect split between U.S. and international stocks, just make sure you have meaningful exposure to each.
The exact numbers will shift over time, but simply keeping a healthy mix is what delivers the benefit.
It also combats the recency bias many of us have.
We tend to assume that what has worked recently will continue to work indefinitely. The past 15 years have reinforced the idea of U.S. exceptionalism—especially in the tech sector.
But history says otherwise.
I love showing off this chart because it really tells the unbiased story.
Going back to 1971, it’s basically a coin flip whether U.S. or international markets outperform in a given cycle.
Leadership shifts depending on which sectors or structural advantages are in favor—tech dominance can lift U.S. equities, while industrial growth, commodity strength, or favorable demographics can drive international outperformance.
This year, international stocks remind us that the world is a lot bigger than just the U.S. market.
