• Investors are rotating capital away from U.S. equities toward international markets, with notable inflows into Europe and Japan and persistent outflows from the U.S. over recent months, a trend that intensified into the second quarter of 2026.
  • Within sectors, buyers have favored healthcare exposure while selling in technology, especially software and AI names, contributing to a shift in sector rotation alongside geographic reallocations.
  • The rotation occurs amid concerns about U.S. rate paths, inflation trajectories, and geopolitical risks, with international markets potentially offering more favorable growth and valuation setups.

Investors are pulling money out of U.S. equities and shifting into international markets, with the trend accelerating into Q2, according to Bank of America. Funds sold $15.4B in U.S. stocks in March while buying heavily in Europe and Japan. Over the past year, U.S. outflows have reached $284B, far exceeding inflows elsewhere. This aligns with Bank of America’s surveys and fund-flow data showing Europe and Japan attracting purchases while U.S. stocks face selling pressure.

The broad theme is a “great rotation” out of U.S. equities and into non-U.S. markets, driven by relative valuation, growth differentials, and expectations for global earnings diversification. Multiple trackers and bank reports have documented record or near-record rotation into Europe and Japan, with U.S. outflows outweighing inflows in several periods. Healthcare attracted strong buying, while tech—especially software and AI—saw major selling. Overall, active funds are now most overweight Europe and underweight the U.S., according to recent data.

Bank of America’s fund-flow commentary has highlighted this shift as part of a broader re-pricing and diversification trend. Global outflows from U.S. stocks are part of a wider pattern where non-U.S. markets receive a larger share of global equity inflows, often accompanied by flows into global ex-U.S. strategies and regional ETFs, reinforcing a multi-year trend toward geographic diversification. The U.S. policy environment, including monetary policy expectations and fiscal considerations, remains a factor in shifting investor sentiment. While specific policy changes can move markets in the near term, the broader rotation appears more driven by relative growth prospects and valuations across regions.

For U.S. investors, the rotation can affect portfolio risk and diversification strategies, potentially reducing exposure to U.S.-listed equities and increasing demand for international equities and hedges. Global fund managers and passive funds may adjust allocations, influencing trading volumes and index weights across regions. The pattern of shifting from U.S. equities to Europe and Asia has precedents in prior rotations, though the current scale is notable and repeatedly cited as nearing or setting “record” levels in some surveys, driven by a rebalancing of global growth expectations. Past episodes show rotations can persist for quarters to years depending on macro momentum and policy shifts.

Short-term, continued vigilance on global growth signals, inflation, and central-bank guidance is key; Europe and Japan may benefit from improving PMIs and earnings expectations relative to the U.S.. Longer-term, if the rotation broadens, non-U.S. equities could outperform U.S. equities for an extended period as global earnings growth rebalances and multiple expansion in Europe/Japan supports valuations. Subsequent fund-flow reports and surveys will clarify whether the rotation accelerates or moderates and how flows are distributed across sectors and country indexes. Price action in Europe and Japan, alongside U.S. earnings reports and policy updates, will influence whether this rotation becomes a durable regime shift or a temporary reallocation.