U.S. stock markets have reached a critical juncture, with a significant dependence on a small group of technology companies to sustain growth. As of the end of the third quarter of 2025, the eight largest American firms, predominantly in technology, accounted for an astonishing 36.1% of the MSCI USA Index value. This concentration is reminiscent of the peak during the dot-com boom, raising concerns about the potential for a widespread market downturn.
The companies often referred to as the “Magnificent 7″—including Apple, Alphabet, Microsoft, Amazon.com, Meta Platforms, Tesla, and Nvidia—comprise nearly one-third of the S&P 500’s market capitalization. This heavy reliance on a limited sector underscores the fragility of the current market structure.
International Markets Present Diverse Opportunities
In contrast, developed markets outside the United States offer a more balanced investment landscape. The MSCI EAFE Index, which represents developed markets in Europe, Australasia, and the Far East, shows a far less concentrated structure. The top eight stocks within this index make up just over 10% of its total weight, with sectors such as financials and healthcare taking precedence over technology.
As of September 2025, financials dominate the EAFE index at approximately 25%, while technology comprises a more modest 8%. This distribution allows for a more diversified investment approach, with opportunities emerging from enterprise software leaders in Europe and consumer technology innovators in Asia.
The relative diversity in international markets decreases dependency on any single sector, mitigating the risk of a significant downturn linked to the performance of dominant firms in the U.S. A stark example of this risk was observed in early April 2025, when the S&P 500 experienced a loss of $5 trillion in market value over just two trading days, highlighting how quickly concentrated gains can shift to vulnerabilities.
Valuation and Yield Advantages Favor International Investments
Investors seeking to broaden their portfolios may find compelling reasons to consider international equities. Current data from MSCI indicates that all eleven sectors in the U.S. trade at higher price-to-earnings multiples compared to their EAFE counterparts. Additionally, dividend yields present a stark contrast, with EAFE offering 2.9% compared to just 1.2% for U.S. equities.
Currency trends also present a potential advantage for U.S.-based investors. The first half of 2025 marked the weakest performance for the U.S. dollar since 1973, attributed to uncertainties surrounding U.S. policy and rising national debt levels. With growth expectations between the U.S. and other developed economies aligning more closely than in previous years, a softer dollar could enhance returns on non-dollar assets.
For many portfolios, particularly those that have not been actively rebalanced over the past 15 years, there is a growing risk of overexposure to large U.S. tech companies. Investors now face the critical question of whether it is prudent to maintain such heavy investments in these firms, especially as their valuations reach new heights and concentration risk becomes historically significant.
By reallocating even a portion of U.S. equity exposure into developed international markets, investors can reduce their reliance on a narrow group of mega-cap firms, capitalize on attractive valuations abroad, and position themselves to benefit from potential currency-driven tailwinds.
As history has shown, market leadership that rests on a single theme rarely sustains itself over time. The current market’s overreliance on the Magnificent 7 presents both a remarkable opportunity and a systemic vulnerability. Diversifying investments to include international equities is not merely a strategy for diversification; it is a proactive approach to broaden return drivers at a time when U.S. market leadership is unusually concentrated.
By acting decisively now, investors can tap into a wider array of opportunities, mitigate risks associated with overconcentration, and better prepare their portfolios for the evolving landscape of global market leadership.
