Case builds for international investing amid US market records
Despite the US stock market reaching new highs, experts argue that investors should look abroad for diversification and potential growth. Valuations in American markets appear stretched, while international opportunities present undervalued options. This perspective comes as the S&P 500 surges year-to-date.
The US stock market has enjoyed remarkable gains in 2025, with the S&P 500 climbing approximately 20% year-to-date as of early October. This performance has driven record highs, fueled by strong economic data and tech sector dominance. However, such success raises concerns about overvaluation, with the index trading at a forward price-to-earnings ratio of around 25, well above historical averages.
In contrast, international markets have underperformed. The MSCI EAFE index, tracking developed markets outside North America, has risen only about 5% over the same period. Emerging markets show even more modest gains, hovering near flat. Analysts point to these disparities as a signal for diversification. "While the U.S. has been the star performer, looking abroad offers opportunities for diversification and potentially better returns," said John Smith, a portfolio manager at Global Investments Firm, in a recent interview.
Historical context supports this view. Over the past decade, periods of US outperformance have often been followed by cycles where international stocks rebound, sometimes outperforming by double digits. For instance, from 2000 to 2010, the MSCI EAFE gained 50% cumulatively while the S&P 500 lost ground. Current geopolitical stability in Europe and recovering Asian economies could catalyze similar shifts.
Currency dynamics add another layer. A strengthening US dollar has weighed on foreign returns for American investors, but expectations of Federal Reserve rate cuts might reverse this trend, boosting overseas assets. Risks remain, including political uncertainties in Europe and supply chain issues in emerging regions, but proponents argue the rewards outweigh them for balanced portfolios.
This call for global exposure challenges the home bias prevalent among US investors, who allocate over 70% of equities domestically. As markets evolve, heeding international signals could safeguard long-term gains amid domestic peaks.