US Against the World
Igor Manukhov - Mar 21, 2025
International markets have been outperforming the US in 2025 so far. I would be careful selling US stocks and buying international ones at this juncture.
The big new in the market this year is that US stocks have been underperforming their international counterparts. The black line on the chart below shows the relative strength of EAFE stocks (Europe, Australia, Far East) against the S&P 500. The rising line indicates EAFE outperformance in percentage terms.
There is a temptation now to sell US stocks and to move funds into EAFE stocks, but I would proceed with caution. First of all, US stocks have been sold off more heavily in the recent pullback compared to EAFE stocks. Selling a depressed asset could mean not getting a good price for it. Also, when reviewing the charts of S&P500 and EAFE indices separately, it appears that the recent outperformance is more due to the weakness in the US market than a strength in EAFE markets – though, EAFE did make money in 2025 so far.
The last time we saw a similar situation was during the last bear market in 2022 (the period between two vertical red lines on the chart). Back then, US also lost more ground than EAFE. However, look at what happen after that: as soon as markets began to rally again, the US regained its leadership position and EAFE took a backseat.
There is no guarantee that history will repeat itself, but I would recommend waiting until markets start to turn around before rebalancing out of the US. If EAFE continues to lead during a rebound, then it would make sense to increase exposure to it. History suggests that market leaders change. Just because U.S. stocks have dominated over the last 15 years doesn’t mean they will dominate for the next 15. However, there’s also a good chance that the U.S. will recover faster than EAFE once investor confidence improves.
