A Look Beyond the US

As we move through early 2026, the geopolitical landscape is shifting in ways that challenge the traditional "set and forget" approach to global equities. A defining moment occurred just this week on January 20th, when the US market was forced to digest a new level of diplomatic friction: President Trump’s renewed demand for Denmark to hand over Greenland.

While the headlines may seem surreal, the market response was a vital case study in how modern portfolios digest political shocks. It wasn't just about a single territory; it was a signal of a deepening divide between the United States and its closest European allies. For us, this serves as a warning shot regarding the limits of market foresight and the hidden risks of US-centric concentration.

The fundamental reason to look beyond the US right now isn't a lack of faith in American innovation—it is a recognition of regime risk. When a US administration actively challenges the established world order and taxes its closest allies, the long-term prospect of a divided West becomes a tangible threat to US-based corporate growth.

In this environment, the "why" for diversification is simple: to decouple client outcomes from a single political and policy regime.

The market move on January 20th provided a clean example of this "policy uncertainty" hitting price action. In a single session, the S&P 500 fell 2.06%, the Nasdaq dropped 2.39%, and the Dow fell 1.76% as investors digested the prospect of tariffs and a more confrontational stance toward traditional partners. (Reuters)

While the US remains robust—with the Atlanta Fed’s GDPNow estimate pointing to 5.3% growth—subtle warning shots are appearing. The Federal Reserve’s latest Beige Book indicates that businesses are finally passing tariff-related costs on to consumers. This suggests that the inflationary consequences of protectionism are no longer a theoretical risk; they are beginning to seep into the American economy.

As the US navigates these internal and external pressures, other regions are beginning to benefit from a "flight to safety" or increased domestic autonomy. We are seeing distinct, non-US drivers of resilience:

• Japan: Under Prime Minister Sanae Takaichi, pro-growth fiscal policies are fuelling a different kind of optimism.

• Europe: Defence and utility sectors are rallying as governments prepare to spend more on security and infrastructure, disentangling themselves from US-centric trade dependencies.

If the US dollar continues to soften as other nations slowly disentangle their finances from Washington, the relative performance of international stocks could continue to outshine their American counterparts, as they did throughout much of last year.

For many clients, the goal isn't to abandon the US, but to ensure their portfolio isn't a hostage to it. The risk of a sudden, catastrophic break in the US-led world order remains a low-probability but high-impact event.

Incorporating a dedicated ex-US allocation offers a pragmatic hedge. It allows clients to participate in the growth of a new, more multipolar global economy while dampening the "regime risk" that currently hangs over the S&P 500. In this landscape, staying flexible is essential, as the form of the new world order is still being written.

To help advisers navigate these shifts, Kernel provides the World ex-US Fund (available in both unhedged and NZD-hedged versions). These funds are designed as pure building blocks, providing broad exposure to developed markets in Europe and Asia while explicitly excluding the United States (Kernel Wealth | Funds). They offer a low-cost transparent way to right-size US exposure without disrupting a client's core strategic growth intent.

For more information see Kernel Wealth | Resources & Documents for fund disclosure documents.