The U.S. stock market has long been a dominant force in the global economy. However, recent trends suggest that international stocks are making a comeback in 2025. So far this year, global equities have returned 7.2% while the S&P 500 has returned 4.5% as of February 19.
This outperformance comes despite U.S. stocks hitting record highs. Investors are becoming increasingly bullish on global equities. European stocks saw the strongest monthly returns against the S&P 500 in January in a decade.
Meanwhile, optimism is building around China’s recovery. Over the past 10 years, the S&P 500 has averaged 13.8% in annualized returns while global stocks have averaged 4.9%. These outsized returns have been largely fueled by U.S. equities.
But as the market soars to new heights, some question how much room there is left to run.
Global equities show renewed strength
By comparison, global stocks have more attractive valuations compared to expensive U.S. stocks.
The last time international stocks outperformed U.S. equities was during the 2000s, marked by the dot-com crash and the global financial crisis. During this time, China’s economic growth drove global equity returns while the S&P 500 lagged. Between 2000 and 2009, the growth of $1,000 invested in the MSCI Emerging Markets Index with dividends reinvested grew to $1,982 while an investment in U.S. stocks fell to $764.
Looking ahead, international stocks possess many tailwinds, which could support equity performance in the years to come. India, the world’s most populous country, is seeing significant economic growth. More households in India now have disposable income in excess of $10,000 than in Japan.
Meanwhile, China is home to a number of highly innovative firms across e-commerce, automotive, and health care industries that are increasingly making up a growing share of global markets. While property market troubles and the lingering effects of COVID-19 lockdowns have depressed prices of many Chinese stocks, it may present an upside for future returns given their historically low valuations in comparison to those in developed markets. As the trends from past decades show, the stock market is cyclical, and periods of U.S. outperformance are often followed by global dominance.
Investors might do well to diversify their portfolios in anticipation of these global growth stories.
