U.S. stocks are increasingly reliant on a small number of technology companies to sustain market performance. As of the end of the third quarter of 2025, the eight largest American companies, predominantly in technology, accounted for an alarming 36.1% of the MSCI USA Index’s total value. This concentration is higher than during the peak of the dot-com boom, leaving investors vulnerable to sudden market corrections.
The so-called “Magnificent Seven,” which includes major players like Apple, Microsoft, Amazon.com, Meta Platforms, Nvidia, and others, makes up approximately a third of the S&P 500’s market capitalization. Such dominance underscores the precariousness of the index’s fortunes, hinging on the ongoing success of a few companies. In stark contrast, the MSCI EAFE Index, representing developed markets in Europe, Australasia, and the Far East, shows a more balanced structure. Its largest companies span various sectors, with the top eight stocks accounting for just over 10% of the index.
Opportunity Beyond U.S. Borders
For investors seeking diversity and lower valuations, international markets present a compelling alternative. The MSCI EAFE Index reveals that as of September 2025, financial services form the largest sector at approximately 25%, while technology constitutes a modest 8%. This structural difference allows investors to avoid the pitfalls of over-reliance on a single sector.
International equities not only offer sector diversity but also exhibit lower price-to-earnings ratios compared to U.S. stocks. According to the latest data, all eleven sectors in the U.S. are priced higher than their EAFE counterparts. Furthermore, dividend yields in international markets stand at 2.9%, significantly outperforming the 1.2% yield of U.S. equities.
Currency trends also provide an additional incentive. The first half of 2025 witnessed the U.S. dollar experiencing its weakest performance since 1973, driven by uncertainties surrounding U.S. economic policies and rising national debt. As growth forecasts between the U.S. and other developed economies converge, a weaker dollar may enhance returns for U.S. investors holding non-dollar assets.
Rebalancing Portfolios for Future Gains
After a decade and a half of U.S. market dominance, many investment portfolios may unintentionally be overweight in technology stocks. Investors should assess not only the ongoing performance of these companies but also the wisdom of maintaining such heavy investments at a time when valuations have escalated and concentration risks are heightened.
Reallocating even a fraction of U.S. equity exposure towards developed international markets can help mitigate reliance on a narrow group of mega-cap companies, tapping into attractive valuations abroad while positioning for potential currency advantages.
History suggests that when a single theme dominates market leadership, it rarely sustains over the long term. The current reliance on the “Magnificent Seven” illustrates both extraordinary business performance and inherent vulnerabilities. Looking beyond U.S. borders is not merely a diversification strategy; it is a pathway to enhanced return potential, especially when U.S. leadership is rooted in an unusually narrow base. Taking action now allows investors to explore a wider array of opportunities, reduce overconcentration risks, and better equip their portfolios for the next cycle of global market leadership.
The views expressed are based on information available as of September 30, 2025, and are subject to change. The data has been sourced from credible organizations, though accuracy cannot be guaranteed. This article does not constitute a recommendation to buy or sell any securities and does not consider individual investment objectives or circumstances. As with all investments, there is a risk of loss.
