The U.S. stock market has long been a standout performer on the global stage. However, recent data suggests that international stocks are making a comeback in 2025. So far this year, global equities have returned 7.2%, outpacing the S&P 500’s 4.5% gain as of February 19.
This strong performance comes despite U.S. stocks hitting record highs. Investors are becoming increasingly bullish on international stocks. European equities, in particular, saw their strongest monthly returns against the S&P 500 in a decade during January.
Optimism is also building around China’s economic recovery. Over the past 10 years, the S&P 500 has averaged annualized returns of 13.8%, while global stocks have averaged just 4.9%. These outsized U.S. returns have been largely driven by specific market conditions.
But as the U.S. market soars to new heights, some question how much room is left to run. By comparison, international stocks have more attractive valuations than expensive U.S. equities. The last time they outperformed the S&P 500 was during the 2000s, marked by the dot-com crash and global financial crisis.
International stocks gain in 2025
Historical data shows that international stocks have cycles of outperformance. For example, between 2000 and 2009, the MSCI Emerging Markets Index turned $1,000 into $1,982 with dividends reinvested.
An investment in U.S. stocks over that same period fell to $764. Looking ahead, international stocks possess many tailwinds that could support continued outperformance. India, the world’s most populous country, is seeing significant economic growth.
More Indian households now have disposable income over $10,000 than in Japan. China is home to many innovative firms across industries like e-commerce, automotive, and healthcare. These companies are making up a growing share of global markets.
While China’s property market troubles and COVID-19 lockdown effects have depressed stock prices, there may be upside potential given their low valuations compared to developed markets. In conclusion, while the S&P 500 has dominated for decades, international stocks are staging a strong comeback so far in 2025. Global equities offer attractive valuations and growth potential driven by developments in countries like China and India.
The current environment may be favorable for investors looking to diversify with international stocks.
Image Credits: Photo by Kyle Glenn on Unsplash
